Infotech Enterprises (Q3 FY13)

India Infoline News Service | Mumbai |

Maintain MP with a reduced 9-month TP of Rs186.

CMP Rs179, Target Rs186, Upside 3.9% 
  • Infotech Enterprises’ revenue performance for Q3 FY13 was below our estimates growing a meager 0.5% qoq (versus our expectation of ~2% growth). This was on the back of ramp downs in certain large accounts in the HTH sub vertical. The consolidated volumes were flat qoq. With an exchange rate impact of -46bps, rupee revenues corrected 0.5% qoq to Rs4.75bn.
  • Amongst the key verticals, HTH (28% of total revenues) de-grew the most with a sequential correction of 5.9% in volumes on the back of extended furloughs and one-off client project closures. With only one month impact of these project closures in Q3 FY13, the full impact will be seen in the coming quarter (Q4 FY13). Amongst the other verticals, Aerospace vertical remained flat qoq, utilities and telecom grew 7.5% qoq and content vertical witnessed a 1.8% qoq correction on volumes.   
  • Customer additions during the quarter were slow with two additions in UTC and nine in Engineering. Most of the growth in Q2 FY13 was driven by Top-5 clients who grew 1.8% qoq in dollar terms with Top 6-10 clients de-growing materially by 4% qoq. Within geographies, growth was led by Asia/Australia which grew 12.5 % qoq in dollar terms. De-growth of 3.7%qoq in Europe was largely due to the weakness in the HTH vertical.
  • OPM performance for Q3 FY13 was decent considering the strong de-growth in volumes from HTH vertical. The OPM for the quarter corrected only 15bps, better than our expectation of 25bps correction despite fall of 200bps in utilization in N&CE and EMI verticals. Lower IASI (associate company) contribution, strong OI  and lower tax rate resulted in a largely in-line PAT of Rs618mn. Management expects higher offshoring in utilities, productivity improvement and employee pyramid broadening to be key margin levers going ahead.  Strong employee additions in H1 FY13 resulted in a largely unchanged employee base in the current quarter. Employee attrition was a concern with quarterly annualized attrition going up materially from 19% in Q2 FY13 to 24% currently.
  • Lower than expected results, continued weakness in verticals of HTH, telecom and overall weak management commentary makes us circumspect on the near to medium term growth prospects of the company. Earlier management expectation of a ‘better H2 over H1’ does not seem to materialize despite strong order booking in the Utilities sub-vertical. We mark down our FY12-14E estimates and now expect ~8% CAGR over FY12-15E. Maintain MP with a reduced 9-month TP of Rs186. 
Result table
(Rs mn) Q3 FY13 Q2 FY13 % qoq Q3 FY12 % yoy
Net sales 4,751 4,771 (0.4) 4,165 14.1
Operating profit 881 892 (1.2) 857 2.8
OPM (%) 18.5 18.7 (15) bps 20.6 (202) bps
Depreciation 162 145 11.8 142 13.5
Interest 3 5 (32.6) 3 6.9
Other income 162 (43) (475.9) (231) (170.3)
PBT 879 699 25.6 481 82.8
Tax 278 226 22.7 172 61.9
Effective tax rate (%) 31.6 32.3 - 35.7 -
Share of IASI Profit 17 30 (42.8) 30 (43.8)
Adjusted PAT 618 503 22.9 340 82.1
Adj. PAT margin (%) 13.0 10.5 (247) bps 8.2 486 bps
Reported PAT 618 503 22.9 340 82.1
EPS (Rs) 5.5 4.5 22.9 3.0 82.1
Source: Company, India Infoline Research

Financial Summary
Y/e 31 Mar (Rs m) FY12 FY13E FY14E FY15E
Revenues (Rs m) 15,531 18,930 20,044 21,508
yoy growth (%) 30.7 21.9 5.9 7.3
Operating profit 2,704 3,484 3,433 3,662
OPM (%) 17.4 18.4 17.1 17.0
Reported PAT (Rs m) 1,630 2,339 2,350 2,441
yoy growth (%) 16.6 43.6 0.4 3.9





EPS (Rs) 14.6 21.0 21.1 21.9
P/E (x) 12.2 8.5 8.4 8.1
Price/Book (x) 1.7 1.4 1.3 1.1
EV/EBITDA (x) 6.1 4.4 4.0 3.3
RoE (%) 14.8 18.4 16.0 14.6
RoCE(%) 21.6 25.7 22.5 20.5
Source: Company, India Infoline Research
BSE 553.60 1.90 (0.34%)
NSE 554.25 1.30 (0.24%)

***Note: This is a NSE Chart

 

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