Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Infotech Enterprises’ (Infotech) Q3FY12 numbers surpassed expectations
on operating margin front (up 490bps QoQ at 20.6%) while volume
growth of 2.3% QoQ was marginally below expectation. Net profit at
INR340mn was impacted by high MTM losses (INR315mn) on hedges
outstanding (marked at INR53.75/USD). Lower working days and rampdown
of one large telecom client impacted volumes during the quarter.
This is likely to bounce back going into Q4 with 3‐5% growth for Q4FY12
and visibility continues to be healthy for FY13 (we expect 18% USD
growth). We note that Infotech’s revenue base is far more stickier than
other enterprise IT peers (seen during FY09 slowdown) that provides
higher comfort during deteriorating IT spending environment. At P/E of
9x/7x FY12E/FY13E earnings, we believe the stock offers good margin of
safety. We maintain ‘BUY’ with a target price of INR170.
Demand stable; new client ramp ups to fuel growth
Lower volume growth in Q3FY12 was led more by seasonal factor and growth is likely
to bounce back as the company is confident of ramping up its new clients (22 clients
won in last two quarters) which will not only offset revenue decline from telecom
client, but also spur growth in the coming quarters. Further, it is seeing client budgets
to be stable with some bias for an uptick in spending. Also, it has received pricing hikes
from its largest client which will aid revenue growth FY13 onwards.
Operational improvement continues to drive margin
Operational efficiencies through right sizing pyramid and cost optimisation initiatives
have started to bear fruits as Infotech has seen significant improvement in EBITDA
margin (300bps in past two quarters); management is confident of additional 100bps
improvement in Q4FY12. With these initiatives and performance being delivered, the
key investor concern—margin improvement—has been put to rest.
Outlook and valuations: Well placed; maintain ‘BUY’
We believe Infotech, with a stable demand outlook and improving margin profile, is likely
to witness an upward re‐rating in the coming quarters. At CMP of INR127 the stock trades
at P/E and EV/EBITDA of 6.8x and 2.8x FY13E. It currently has cash and cash equivalents
of INR3.9bn (28% of MCap). We maintain ‘BUY/Sector Outperformer’.
Company Description
Infotech is a 9,197 plus employee software services company with competencies in: (a)
N&CE services (catering to utility, transportation, and government segments); (b)
engineering design services (for engineering, manufacturing, and industrial products
verticals); and (c) software services (to clients in data and technology services, engineering
design, and IT services. The company’s past twelve month revenues stood at INR14.7bn
(USD313mn).
Investment Theme
Outsourcing of engineering services is expected to reach USD 38‐50 bn by FY20E compared
with USD 2 bn now, as per a Nasscom‐Booz Allen Hamilton study. As one of the leading
offshore engineering services firms for the manufacturing industry, Infotech is poised to
grab the increasing opportunities. The company has strong domain knowledge and
complete solution capability in the GIS segment along with healthy pipeline of deals. The
company’s skills in the areas of mapping and designing across diverse segments and in a
variety of end‐user IT environments give it an edge.
Key Risks
Significant appreciation of INR against USD, EUR, and GBP.
Inadequate availability of skilled manpower.
Sustained slowdown in engineering services spending.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Infotech Enterprises’ (Infotech) Q3FY12 numbers surpassed expectations
on operating margin front (up 490bps QoQ at 20.6%) while volume
growth of 2.3% QoQ was marginally below expectation. Net profit at
INR340mn was impacted by high MTM losses (INR315mn) on hedges
outstanding (marked at INR53.75/USD). Lower working days and rampdown
of one large telecom client impacted volumes during the quarter.
This is likely to bounce back going into Q4 with 3‐5% growth for Q4FY12
and visibility continues to be healthy for FY13 (we expect 18% USD
growth). We note that Infotech’s revenue base is far more stickier than
other enterprise IT peers (seen during FY09 slowdown) that provides
higher comfort during deteriorating IT spending environment. At P/E of
9x/7x FY12E/FY13E earnings, we believe the stock offers good margin of
safety. We maintain ‘BUY’ with a target price of INR170.
Demand stable; new client ramp ups to fuel growth
Lower volume growth in Q3FY12 was led more by seasonal factor and growth is likely
to bounce back as the company is confident of ramping up its new clients (22 clients
won in last two quarters) which will not only offset revenue decline from telecom
client, but also spur growth in the coming quarters. Further, it is seeing client budgets
to be stable with some bias for an uptick in spending. Also, it has received pricing hikes
from its largest client which will aid revenue growth FY13 onwards.
Operational improvement continues to drive margin
Operational efficiencies through right sizing pyramid and cost optimisation initiatives
have started to bear fruits as Infotech has seen significant improvement in EBITDA
margin (300bps in past two quarters); management is confident of additional 100bps
improvement in Q4FY12. With these initiatives and performance being delivered, the
key investor concern—margin improvement—has been put to rest.
Outlook and valuations: Well placed; maintain ‘BUY’
We believe Infotech, with a stable demand outlook and improving margin profile, is likely
to witness an upward re‐rating in the coming quarters. At CMP of INR127 the stock trades
at P/E and EV/EBITDA of 6.8x and 2.8x FY13E. It currently has cash and cash equivalents
of INR3.9bn (28% of MCap). We maintain ‘BUY/Sector Outperformer’.
Company Description
Infotech is a 9,197 plus employee software services company with competencies in: (a)
N&CE services (catering to utility, transportation, and government segments); (b)
engineering design services (for engineering, manufacturing, and industrial products
verticals); and (c) software services (to clients in data and technology services, engineering
design, and IT services. The company’s past twelve month revenues stood at INR14.7bn
(USD313mn).
Investment Theme
Outsourcing of engineering services is expected to reach USD 38‐50 bn by FY20E compared
with USD 2 bn now, as per a Nasscom‐Booz Allen Hamilton study. As one of the leading
offshore engineering services firms for the manufacturing industry, Infotech is poised to
grab the increasing opportunities. The company has strong domain knowledge and
complete solution capability in the GIS segment along with healthy pipeline of deals. The
company’s skills in the areas of mapping and designing across diverse segments and in a
variety of end‐user IT environments give it an edge.
Key Risks
Significant appreciation of INR against USD, EUR, and GBP.
Inadequate availability of skilled manpower.
Sustained slowdown in engineering services spending.
Infotech can be a best company, where you can get guaranteed Income at all.
ReplyDelete