Infinite Computer Soln :Valuation do not capture high growth momentum: Centrum

Valuation do not capture high growth momentum
Infinite Computer Solutions (India) Ltd. (ICSL) is a global provider of application management services, infrastructure management services (IMS) and intellectual property (IP) leveraged solutions. ICSL focuses on telecom, media, manufacturing, healthcare, energy & utilities and infrastructure verticals
With recent acquisition of Patni by iGate, we believe that there can be further consolidation in the mid and small sized IT companies, going forward. Since, the IT industry growth is tapering off and the big IT companies are posting poor growth, we believe that the major IT players will try and go in for consolidation. ICSL is not likely to be acquired, however, we believe that such M&A activities in mid-cap IT segment would improve the valuation of ICSL which is quoting at very low PE of mere 4.1x FY2012 EPS of Rs.28
ICSL’s management has given guidance for FY2013 of 20% YoY and 11% YoY growth in revenues and PAT, respectively in USD terms and a growth of 31% YoY to Rs.1,380 crore and 21% YoY to Rs.146 crore in revenue and PAT, respectively in INR terms. The EPS guidance for FY2013 stands at Rs.34.30 per share. ICSL expects to sign deals worth USD 30-60 million in FY2013 which are currently in the pipeline. We believe that the company will be able to grow its revenues by more than 25% in INR terms, supported by the depreciation in INR against the USD
In FY2012, the company declared an interim dividend of Rs. 4 per share in November 2011 and a further final dividend of Rs.4.50 per share, taking the total dividend to Rs.8.50 per share for FY2012. Also, in May 2012, ICSL announced a stated dividend policy of giving away 30% of net profits as dividend.
The company had cash on books of Rs.157 crore as on March 31, 2012 which works out to Rs.36 per share. At the current market price of Rs.118, the cash on books works out to 30.5% of the current market cap of the company
In FY2012, on a consolidated basis, ICSL registered revenue growth of 20% YoY to Rs.1056 crore and PAT growth of 13% YoY to Rs.120.7 crore. The EPS for FY2012 was Rs.28 per share. Further, in Q1FY13, the company reported strong growth in revenue and net profit of 19.9% QoQ to Rs.319.2 crore and 71% QoQ to Rs.35.4 crore respectively. At the current market price, the stock is available at an attractive valuation of 4.1x FY2012 earnings and 3.4x its FY2013E guided EPS of Rs.34.30. We believe that there will be a shift in valuations of mid and small sized IT companies due to consolidation activity and the average PE multiple of IT companies like ICSL, which are witnessing strong operating performance, should witness a vertical shift. Even if the PE of ICSL moves up just one notch to around 4x FY2013E earnings, we believe that there is strong appreciation potential in the stock price by about 19%. The cash in the books of the company, of Rs.43 per share provides further comfort. Hence, we recommend investors to consider accumulating.

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