Infotech Enterprises (Q4 FY13)

India Infoline News Service | Mumbai |

Infotech Enterprises’ revenue performance for Q4 FY13 was marginally better than our estimates.

CMP Rs164, Target Rs180, Upside 9.7%

  • Infotech Enterprises’ revenue performance for Q4 FY13 was marginally better than our estimates. The reported revenues of US$85.9 de-grew 1.9% qoq versus our expectation 2.5% sequential decline. In rupee terms, the revenues came in at Rs4.65bn, down 2.2% qoq. The weak revenue performance was largely on the back of certain client specific ramp downs and higher offshoring.

  • Both the key verticals of UT&C and Engineering de-grew on a sequential basis by 1.1% and 2.7% qoq respectively. The weakness in the engineering vertical was mainly due to certain customer ramp downs in US, temporary stoppage and closure of specific client departments in Hi-tech sub-vertical.  Within these key verticals, except for the sub-vertical of content engineering (+4.8% qoq), the other sub-verticals of Utilities & Telecom (-3.6% qoq), Aero (-3% qoq) and HTH (-2.3% qoq) de-grew.  

  • Customer additions during the quarter improved with eight additions in UTC and eleven in Engineering. From the clients’ perspective, both the top-5/top-10 clients de-grew materially by 6.5% and 8.6% qoq respectively. On the other hand, non top-10 had a strong growth of 5.2% qoq. Amongst geographies, while Americas de-grew materially 9%, emerging geographies (+14.9% qoq) and Europe (+5.8% qoq) posted strong growth.

  • The operating margin for Q4 FY13 corrected 150bps qoq to 17% against our expectation of 180bps correction. Lower volumes especially in the engineering business, higher SG&A expenses and strong hiring resulted in the correction in the operating margin. Though the depreciation came in higher than expected (due to unanticipated impairment of intangible asset), it was offset by the lower effective tax rate. The net profit for the quarter was resultantly higher than expected coming in at Rs542mn. Employee additions were strong with employee base growing 3.8% qoq. Attrition too cooled of to 11.8% from 15.5% last quarter. Management guided for a mixed margin outlook with tailwinds of utilization, offshoring and pyramid optimization offset by higher S&M and salary hikes.

  • Q4 FY13 performance for Infotech Enterprises was marginally better than anticipated. Though the management has painted a better picture for FY14 with order book of ~US$290mn, we believe, weak exit rate of Q4 FY13 and the continued softness in HTH may result in a tepid H1 FY14 for the company.  We anticipate correction in OPM as volumes (and hence utilization) could remain weak in near term and also rupee depreciation may not be a material support in FY14 (as opposed to FY13). We reduce our 9-month TP to Rs180 and maintain MP rating.

Result table
(Rs mn) Q4 FY13 Q3 FY13 % qoq Q4 FY12 % yoy
Net sales 4,645 4,751 (2.2) 4,174 11.3
Operating profit 791 881 (10.2) 827 (4.4)
OPM (%) 17.0 18.5 (151) bps 19.8 (278) bps
Depreciation 195 162 21.0 113 72.3
Interest 4 3 25.8 4 8.3
Other income 100 162 (38.2) 349 (71.3)
PBT 692 879 (21.2) 1,060 (34.7)
Tax 171 278 (38.5) 384 (55.5)
Effective tax rate (%) 24.6 31.6 - 36.2 -
Share of IASI Profit 21 17 19.9 39 (46.8)
Adjusted PAT 542 618 (12.3) 714 (24.1)
Adj. PAT margin (%) 11.7 13.0 (134) bps 17.1 (544) bps
Reported PAT 542 618 (12.3) 698 (22.4)
EPS (Rs) 4.9 5.5 (12.3) 6.3 (22.4)
 Source: Company, India Infoline Research

Financial Summary
Y/e 31 Mar (Rs m) FY12 FY13 FY14E FY15E
Revenues (Rs m) 15,531 18,731 19,622 21,557
yoy growth (%) 30.7 20.6 4.8 9.9
Operating profit 2,704 3,416 3,267 3,633
OPM (%) 17.4 18.2 16.7 16.9
Reported PAT (Rs m) 1,630 2,329 2,472 2,624
yoy growth (%) 16.6 42.9 6.1 6.2
         
EPS (Rs) 14.6 20.9 22.2 23.6
P/E (x) 11.2 7.8 7.4 7.0
Price/Book (x) 1.6 1.6 1.3 1.1
EV/EBITDA (x) 5.1 4.3 3.9 3.1
RoE (%) 14.9 20.0
BSE 572.50 [7.20] ([1.24]%)
NSE 568.20 [10.50] ([1.81]%)

***Note: This is a NSE Chart

 

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