Infotech Enterprises (Q1 FY14)

India Infoline News Service | Mumbai |

Infotech Enterprises’ revenue performance for Q1 FY14 was marginally lower than our estimates.

CMP Rs181, Target Rs200, Upside 10.5% 

  • Infotech Enterprises’ revenue performance for Q1 FY14 was marginally lower than our estimates. The reported revenues of US$86 grew 0.1% qoq versus our expectation 0.3% sequential growth. This was on the back of constant currency growth of 0.7% which was impacted by negative cross currency movement of 60bps. In rupee terms, the revenues came in at Rs4.84bn, up 4.2% qoq.


  • Among the key business segment, Engineering de-grew 0.8% qoq growth. On the flip-side, the UT&C vertical grew well at 2.2% sequentially in dollar terms. Though the engineering vertical growth was tepid, the management commented that large part of the ramp-downs seen in last couple of quarters was done with. Within the sub-verticals, Content engineering led the growth (+4.7% qoq) followed by utilities and telecom (+1% qoq). Engineering sub-verticals had a de-growth with HTH and Aerospace correcting 0.9%, 0.4% respectively.


  • Customer addition during the quarter was weak with five additions each in UTC and Engineering. From the clients’ perspective, both the top-5/top-10 clients grew well by 4.4% and 2.6% qoq respectively. Improved client mining is also evident from the fact that nearly 72% of the Q1 FY14 order bookings came from top 20 clients. Amongst geographies, growth was led by Americas (+1% qoq). Europe on the other hand, de-grew 1.7% sequentially in dollar terms.


  • Operating margin performance for Infotech Enterprise was impressive. The OPM corrected only 46bps against our expectation of 265 bps due to the impact of salary hikes, employee hiring and visas. More specifically, the 350bps impact of salary hikes was largely offset by rupee depreciation benefits (150bps impact) and operational efficiencies (60 bps impact). The other income came in better than expected due to higher dividends and higher forex gains. The materially higher ETR for the quarter was on the back of dividend tax paid on dividends received from overseas subsidiaries. Overall the PAT came in Rs543mn growing marginally by 0.2% qoq. On the employee front, Employee additions continued to be strong with net additions growing ~3% qoq.

     

  • In Q1 FY14, though revenues failed to impress, the OPM performance was a beat to our expectation. Improving outlook for its core business in areas of rail, transportation, utilities and telecom should bode well for the stock considering the weak revenue performance over past 2-3 quarters. This is also evident in the order backlog of ~US$225mn already built up for the company. Expect the margin to remain range bound with utilization, SG&A leverage being key margin levers going ahead. We incorporate weak rupee assumption and Q1 margin outperformance in the estimates. Valuations at 7.5x FY15E earnings appear attractive. Recommend BUY with TP of Rs 200

Result table
(Rs mn)
Q1 FY14
Q4 FY13
% qoq
Q1 FY13
% yoy
Net sales
4,839
4,645
4.2
4,564
6.0
Operating profit
802
791
1.4
852
(5.9)
OPM (%)
16.57
17.03
(46) bps
18.66
(209) bps
Depreciation
181
195
(7.5)
134
34.7
Interest
7
4
76.9
1
-
Other income
182
100
81.4
179
1.8
PBT
796
692
15.0
896
(11.1)
Tax
295
171
72.6
292
0.8
Effective tax rate (%)
37.0
24.6
-
32.6
-
Adjusted PAT
502
522
(3.8)
586
(14.3)
Adj. PAT margin (%)
10.4
11.2
(86) bps
12.8
(246) bps
Reported PAT
543
542
0.2
647
(16.1)
EPS (Rs)
4.9
4.9
-
5.8
(16.2)
Source: Company, India Infoline Research

Financial Summary
BSE 550.05 [9.80] ([1.75]%)
NSE 552.95 [5.45] ([0.98]%)

***Note: This is a NSE Chart

 

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Y/e 31 Mar (Rs m)
FY12