Accumulate Infotech Enterprises - 3QFY2012 Result Update - Angel Broking

For 3QFY2012, Infotech Enterprises (Infotech) reported a modest set of results, with volume growth of 2.0% and 2.3% qoq in the network and content engineering (NCE) and engineering manufacturing and industrial products (ENGG) verticals, respectively. To control staff costs and rationalize the employee pyramid, the company plans to hire 1,200 freshers in FY2012. We expect Infotech to post a 17.6% CAGR in USD revenue over FY2011–13E. We recommend Accumulate on the stock.

Quarterly highlights: For 3QFY2012, Infotech reported revenue of US$81.7mn, up 0.4% qoq, on the back of 2.3% qoq volume growth. The company witnessed a 1.0% qoq increase in price in 3QFY2012. In INR terms, revenue came in at Rs.416cr, up 11.8% qoq. The company's EBITDA and EBIT margins increased by 484bp and 473bp to 20.6% and 17.1%, respectively, largely on the back of INR depreciation against USD and an increase in offshoring of business as share of offshore venues grew from 45.9% in 2QFY2012 to 48.0% in 3QFY2012. PAT came in at Rs.34cr, up 9.9% qoq, during 3QFY2012.

Outlook and valuation: Management had guided for 22-25% yoy growth in INR revenue in FY2012, which has already been achieved in 9MFY2012 due to sharp INR depreciation. Also, the company has got a price increase from some of its selective clients, which instills confidence in the company's performance going ahead. So, over FY2011-13E, we expect Infotech to post a USD and INR revenue CAGR of 17.6% and 23.2%, respectively. For FY2012, management expects operating margins to exit at ~17%, which can be easily achieved now, given the sharp INR depreciation. We expect EBITDA margin to decline to 16.0% in FY2013 due to wage inflation and fresher hiring, which will lead to lower utilization level. We value the company at 8.5x FY2013E EPS of Rs.15.8, which gives us a target price of Rs.134, and recommend Accumulate on the stock.

Source : Equity Bulls

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