Infotech Enterprises - Right focus to yield positive results; Buy ::Edelweiss (PDF Link)

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Infotech Enterprises (INFTC IN, INR 146, Buy)

We recently attended Infotech Enterprises’ (Infotech) maiden analyst meet held at Hyderabad. The meet’s key objective was to give investors a peek into the company’s operations, which was accomplished via  presentations by business heads, sub-vertical heads and project demos. The primary message we gather is that the company is now cognizant of various improvement areas and is taking initiatives that will not only tighten financial metrics, but also lend scalability hereon. At 7.9x FY13E earnings we deem valuations attractive and believe execution of stated initiatives will lead to re-rating over the next 2-3 quarters. Maintain ‘BUY’.Key highlights of the meet are as follows:

Focus on systems and processes to lend higher scalability

In its endeavor to improve efficiency, Infotech is focused on making its systems and processes robust and scalable. This will include SAP integration (currently 3 subsidiaries operating independently), integrating HRIS systems, following universal delivery management system and CRM that currently runs on salesforce.com. This will bring not only efficiency in operations but also enhance scalability.

Extend service portfolio adjacently to scale electronics

Infotech's focus has so far been on adding 'must have' accounts that have large outsourcing potential led by changing the incentive structure of customer facing roles. Now the focus is equitable to improve market share within different engineering verticals (ex-rail where it has 60% share) by adding electronics focus (from mechanical earlier) and from standalone solutions to integrated solutions. This has been partly achieved by changed revenue composition and 40% growth in order intake in N&CE.

Outlook and valuations: On right track; maintain ‘BUY’

At CMP of INR146, the stock currently trades at a P/E of 7.9x and EV/EBITDA of 3.4x on FY13E. While these valuations are lower than its historic range of 10-11x, we believe as Infotech delivers on its stated strategy, improves cash generation and return ratios, the P/E ratio will expand. We re-iterate our ‘BUY’ recommendation with target of INR185.

Infotech Enterprises - Right focus to yield positive results; company update; Buy