Infinite Computer Solutions – BUY- most attractive mid-cap IT firms: IIFL

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Infinite Possibilities
With among the best client mining, a high degree of non-linearity in its pricing models and an ongoing
structural margin expansion, Infinite Computer Solutions could be among the fastest growing IT firms.
We don’t see any parallel in its ability to mine clients (three US$20m+ accounts including a US$50m+
account) among companies of its size. Ramp ups at recent large deal wins and cross-selling of services
into existing clients provide visibility of robust medium-term revenue growth. In addition, expansion
in EBITDA margins, due to non-linearity and higher offshoring imply a 25% EBITDA CAGR over FY11-
13. Concerns exist due to a higher risk in its pricing models and a high client concentration. But, cheap
valuations (7x FY11ii PER) more than price in these risks and make Infinite among the most attractive
mid-cap IT firms.


Best client mining: Infinite stands out from the rest of mid-cap IT firms, due to its ability to mine clients
and win large deals. Its top-2 accounts (US$50m+ and US$20m+) and a recent large deal win (US$400m+
of TCV and US$40m+ of ACV) stand as testimonials. While not easy to replicate, we believe an experienced
onsite sales team and a high degree of flexibility in its pricing model have been the key behind its mining.

High visibility and margin leverage: Ramp ups on recent deals and cross-selling opportunities give it a
good visibility of growth in the medium term. In addition, an increasing offshore mix and additional tailwinds
as non-linear deals ramp up (EBITDA margins on some of them could be ~2x of Infinite’s current margins)
are structural margin levers. As such, over FY11-13, we conservatively see EBITDA margins improving by
~100bps and EBITDA registering a CAGR of ~25% between FY11 and FY13.

Risks priced in: Cash flow generation was poor in the past due to the sub-scale nature of its contracts back
then and investments in non-linear deals but is improving. Risks such as high client concentration and higher risk
in its contracts exist due to its non-T&M billing model. That said, valuations (7x FY11ii PER) are attractive and we
initiate coverage with BUY.