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Infotech Enterprises 3QFY2013 performance highlights and results update

Contributed by Angel Broking

For 3QFY2013, Infotech Enterprises (Infotech) reported a muted set of results, with almost negligible volume growth. The quarter witnessed challenges in two of the top 10 client accounts. These two accounts (one in heavy engineering and one in hi-tech) resulted in a revenue impact of -4.2% qoq. We maintain our Neutral view on the stock.

Quarterly highlights: For 3QFY2013, Infotech reported a revenue of US$87.6mn, up merely 0.5% qoq. The overall volume growth was nil for the quarter. In INR terms, the revenue came in at Rs.475cr, down 0.4% qoq. The EBITDA and EBIT margin declined by 15bp and 52bp qoq to 18.5% and 15.1%, respectively. The company’s operating margin faced headwinds from muted volume growth and healthy gross addition of 656 employees into the system.

Outlook and valuation: The management had cut its FY2013 USD revenue growth guidance to less than 11% from 11-14% earlier in constant currency terms. To achieve it, the company faces an ask rate of 10%+ in 4QFY2012 which looks unachievable. The key reason for it being the extended furloughs seen by the company and ramp down in one of its top 10 accounts. The company has been making investments to strengthen its product portfolio and is taking initiatives to improve its financial metrics. The company is now focusing on strengthening its leadership along with improving its systems and processes and making them scalable. We expect an USD revenue growth of 7.1% yoy for FY2013. Over FY2012-14E, we expect the company to post a USD and INR revenue CAGR of 6.6% and 13.1%, respectively. We expect EBITDA and PAT CAGR to be at 13.1% and 15.1%, respectively, over FY2012-14E. At the current market price of Rs.178, the stock is trading at 9.2x FY2014E EPS. We value the company at 9.5x FY2014E EPS of Rs.19.4, which gives us a target price of Rs.184; we maintain our Neutral view on the stock.