Infotech Enterprises – Market Performer (Target Price Rs351, Upside 5.3%)

CMP Rs333, Target Price Rs351, Upside 5.3%

Our recent interaction with Infotech’s management has increased our conviction in company’s earnings growth delivery over next two years. Infotech stands out in the mid-cap IT space due to its niche character, healthy revenue visibility, margin resilience, low attrition and strong balance sheet (C&E at ~40%). While maintaining revenue estimates, we increase margin assumptions for FY11 (by 50bps) and FY12 (by 120bps) materially. Resultantly, we upgrade earnings estimate by 2% for FY11 and 8% for FY12. Our 1-year target price based on 12x FY12 P/E (assigned above median mid-cap multiple) has been revised upwards by 8% to Rs351. However, the recent stock outerperformance limits any substantial absolute upside and therefore we retain MP on Infotech.