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Infotech Enterprises
Performance Highlights
Y/E March (` cr) Net sales EBITDA EBITDA margin (%) Net profit 4QFY13 464 79 17.0 54 3QFY13 475 88 18.5 62 % chg (qoq) (2.2) (10.2) (151)bp (12.3) 4QFY12 417 83 19.8 71 % chg (yoy) 11.3 (4.4) (279)bp (24.1)
ACCUMULATE
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code IT 1,834 (498) 0.3 211/150 52,678 5 19,407 5,916 INFE.BO INFTC@IN
`164 `185
12 Months
For 4QFY2013, Infotech Enterprises (Infotech) reported a weak set of results on the operating front. The company witnessed challenges in two of its top 10 client accounts. The Management sounded confident of FY2014 turning out to be a better year than FY2013 and plans to hire ~2,500 gross employees with ~15% planned attrition. We maintain our Accumulate rating on the stock. Quarterly highlights: For 4QFY2013, Infotech reported a revenue of US$85.9mn, down 1.9% qoq, majorly impacted by ramp downs seen in a couple of customer accounts in the America geography - one in heavy engineering and one in hi-tech industry verticals. In INR terms, the revenue came in at `464cr, down 2.2% qoq. The EBITDA and EBIT margins declined by 151bp and 232bp qoq to 17.0% and 12.8%, respectively, due to muted volume growth and inch up in employee costs on account of the gross addition of 783 employees into the system. The PAT came in at `54cr, down 12.3% qoq, impacted by lower other income of `10cr as against `16 in 3QFY2013. Outlook and valuation: The Management sounded confident of FY2014 turning out to be a better year than FY2013. For FY2014, in the ENGG vertical, the Management indicated at a robust deal pipeline in the aerospace business, and is seeing strong signs of growth in the transportation business segment owing to recovery in the transportation industry. Further, the Management cited that it is seeing initial signs of recovery in the hi-tech business segment while heavy engineering is still looking soft. In the UT&C vertical, for FY2014, the Management indicated at a strong pipeline for the utilities business segment; in the telecom business segment, it expects business to remain stable with growth lower than the companys average growth rate. Over FY2013-15, we expect the company to post a USD and INR revenue CAGR of 8.0% and 7.7%, respectively. We value the company at 8.5x FY2015E EPS of `21.9, which gives us a target price of `185; we maintain our Accumulate view on the stock. Key financials (Consolidated)
Y/E March (` cr) Net sales % chg Net profit % chg EBITDA margin (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x) FY2011 1,188 24.6 140 (18.3) 15.2 12.6 13.0 1.7 13.4 12.6 1.2 7.6 FY2012 1,553 30.7 163 16.7 17.4 14.5 11.3 1.5 13.6 18.5 0.8 4.8 FY2013E 1,873 20.6 233 42.9 18.2 20.7 7.9 1.4 17.6 20.9 0.7 3.7 FY2014E 1,956 4.4 227 (2.6) 17.9 20.4 8.0 1.2 14.7 18.3 0.6 3.1 FY2015E 2,174 11.1 243 7.1 17.7 21.9 7.5 1.0 13.7 17.4 0.4 2.4
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 22.4 6.3 29.7 41.7
3m (3.5) (4.9)
Ankita Somani
+91 22 3935 7800 Ext: 6819 ankita.somani@angelbroking.com
Tax
PAT
Adj. PAT
PAT margin (%)
EPS(`)
Source: Company, Angel Research
(US $mn)
85 84 83 82 81 80
UT&C: During the quarter, the UT&C verticals USD revenue declined by 1.1% qoq to US$29.4mn. In INR terms, the revenue came in at `159cr, down 1.4% qoq. The utilities and telecom business segment witnessed a USD and INR revenue decline of 3.2% and 3.7% qoq, respectively. The company added six clients two each in EMEA, APAC and India in the utilities and telecom business segment. The company is witnessing good revenue traction both with direct end users and also via a number of its strategic alliance partners. The content business segment reported a revenue growth of 5.8% and 4.9% qoq in USD and INR terms, respectively. The company added two new clients in the content business segment during the quarter.
(US $mn)
26 24 22 20 18 16
ENGG: The ENGG verticals revenue declined by 2.7% qoq to US$55.4mn. In INR terms, the revenue came in at `300cr, down 3.0% qoq. In this vertical, the aerospace business segment witnessed a revenue decline of 2.9% and 3.2% in USD and INR terms qoq, respectively and witnessed an addition of a customer during the quarter. During 3QFY2013, the company witnessed challenges in this vertical with two of the top 10 accounts; its impact percolated in 4QFY2013 as well. One of these
April 25, 2013
(%)
(%)
clients is a heavy equipment client which announced furloughs, thereby impacting a significant part of the engagement; and another being a semiconductor customer which announced exit in two key areas of the companys engagement, resulting in sudden ramp-down of the contract. This resulted in a 2.1% and 2.4% qoq decline in revenues in USD and INR terms qoq, respectively, in the HTH (hitech, transportation and heavy engineering) business segment. Overall the company added 11 new clients in the ENGG vertical.
(US $mn)
50 48 46 44 42 40 4QFY12 1QFY13 2QFY13 3QFY13 qoq growth (%) 4QFY13 Revenue (USD terms) (3.2) (2.7)
The utilization level for the UT&C vertical declined by ~100bp qoq to 82% due to strong net employee additions, while utilization level for the ENGG vertical increased by ~200bp to 73%.
(%)
52
(%)
75 70 65 4QFY12 1QFY13 UT&C
Source: Company, Angel Research
73 71
73
4QFY13
Margins decline
For 4QFY2013, the EBITDA and EBIT margins of the company declined by 151bp and 232bp qoq to 17.0% and 12.8%, respectively. The companys operating margin faced headwinds from a muted volume growth and healthy gross addition of 783 employees into the system. The Management indicated that the company is planning to give wage hike to employees (quantum not disclosed), effective from 1QFY2014, which is expected to impact 1QFY2014s operating margins by ~250-300bp.
(%)
12.8
2QFY13
4QFY13
Management cited that it is seeing initial signs of recovery in the hi-tech business segment while heavy engineering is still looking soft. In the UT&C vertical, for FY2014, the Management indicated at a strong pipeline for the utilities business segment and expects business to remain stable in the telecom business segment with growth lower than the companys average growth rate. Over FY2013-15, we expect the company to post a USD and INR revenue CAGR of 8.0% and 7.7%, respectively. Infotech has been consistently underperforming on the operating margin front. The company is now focusing on addressing the same by levers such as improving the utilization level and shifting more work offshore. During FY2014, the operating margins of the company will face headwinds of wage hikes and costs related to increasing sales force, and tailwinds of increasing utilization, pyramid rationalization and offshoring more of the work. We expect EBITDA margin of the company to remain in a narrow range and move to 17.9% in FY2014 and 17.7% in FY2015 from 18.2% in FY2013. At the current market price of `164, the stock is trading at 8.0x FY2014E and 7.5x FY2015E EPS. We value the company at 8.5x FY2015E EPS of `21.9, which gives us a target price of `185; we maintain our Accumulate view on the stock.
(` )
Oct-07
Oct-08
Oct-09
Oct-10
Oct-11
Oct-12
2x
Apr-07
Apr-08
Apr-09
Apr-10
Apr-11
Apr-12
Price
Source: Company, Angel Research
18x
14x
10x
6x
Apr-13
Company background
Infotech Enterprises, a mid-cap Indian IT company, specializes in geographical spatial solutions and engineering design services with a focus on the aerospace, rail and hi-tech segments. Infotech has entered into long-term strategic relationships with global clients, such as Bombardier, Boeing, Hamilton Sunstrand and Alstom Transport, and has signed multi-million dollar contracts with them. The company's offerings are spread across two verticals - network and content engineering (UT&C; contributing ~31% to revenue) and engineering manufacturing and industrial products (ENGG; contributing ~69% to revenue).
Balance sheet
Y/E March (` cr) Equity capital Share premium account Reserves and surplus Shareholders funds Minority interest Borrowings Total capital employed Gross block Accumulated depreciation Net block CWIP Deferred tax asset Investments Sundry debtors Cash and cash equivalents Loans and advances Prepaid and other current assets Total current assets Sundry creditors and others Other current liabilities Provisions Total current liab. and provisions Net current assets Total capital deployed FY2011 56 334 655 1,046 0.6 1,046 560 288 273 65 1.5 91 268 350 185 34 929 79 25 118 222 707 1,046 FY2012 56 334 805 1,195 0.6 1,196 620 337 283 65 2.0 98 300 426 220 28 1,071 92 77 57 225 846 1,196 3.2 1,329 759 401 358 92 3.8 61 401 498 59 100 1,119 121 75 48 245 875 1,329 1,540 819 469 350 92 3.8 91 464 643 94 100 1,392 136 113 48 298 1,094 1,540 1,770 879 545 334 92 3.8 121 522 787 129 100 1,659 148 123 48 319 1,340 1,770 FY2013E 56 4 1,266 1,326 FY2014E 56 4 1,480 1,540 FY2015E 56 4 1,710 1,770
10
11
Key ratios
Y/E March Valuation ratio (x) P/E P/CEPS P/BVPS Dividend yield (%) EV/Sales EV/EBITDA EV/Total assets Per share data (`) EPS (Basic) EPS (Fully diluted) Cash EPS Dividend Book value DuPont analysis Tax retention ratio (PAT/PBT) Cost of debt (PBT/EBIT) EBIT margin (EBIT/Sales) Asset turnover ratio (Sales/Assets) Leverage ratio (Assets/Equity) Operating ROE Return ratios (%) RoCE (pre-tax) Angel RoIC RoE Turnover ratios (x) Asset turnover (gross block) Receivables days Payable days 2.1 73 36 2.5 67 33 2.5 68 35 2.4 69 37 2.5 69 37 12.6 24.4 13.4 18.5 36.4 13.6 20.9 41.0 17.6 18.3 39.5 14.7 17.4 40.1 13.7 0.8 1.2 0.1 1.1 1.0 12.7 0.6 1.1 0.1 1.3 1.0 12.7 0.7 1.1 0.1 1.4 1.0 16.4 0.7 1.1 0.1 1.3 1.0 14.1 0.7 1.1 0.1 1.2 1.0 13.2 12.6 12.6 17.0 1.3 94 14.5 14.5 19.1 1.0 108 20.7 20.7 26.7 1.0 120 20.4 20.4 26.6 1.0 139 21.9 21.9 28.7 1.0 159 13.0 9.7 1.7 0.8 1.2 7.6 1.3 11.3 8.6 1.5 0.6 0.8 4.8 1.1 7.9 6.1 1.4 0.6 0.7 3.7 0.9 8.0 6.2 1.2 0.6 0.6 3.1 0.7 7.5 5.7 1.0 0.6 0.4 2.4 0.5 FY2011 FY2012 FY2013E FY2014E FY2015E
12
E-mail: research@angelbroking.com
Website: www.angelbroking.com
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
Infotech Enterprises No No No No
Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors
Ratings (Returns):
13