Infotech Enterprises

8/2/2019 Infotech Enterprises

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Please refer to important disclosures at the end of this report 1

Y/E March (` cr) 4QFY12 3QFY12 % chg (qoq) 4QFY11 % chg (yoy)Net sales 417 417 0.2 326 28.1EBITDA 83 86 (3.4) 47 77.0

EBITDA margin (%) 19.8 20.6 (75)bp 14.3 548bp

Net profit 70 34 106.7 37 88.9Source: Company, Angel Research

For 4QFY2012, Infotech Enterprises (Infotech) reported a decent set of results,

with volume growth of 2.1% in each of the verticals network and content

engineering (NCE) and engineering manufacturing and industrial products

(ENGG). Infotech added 16 new customers during the quarter. Order intake inthe NCE vertical in 4QFY2012 was the highest ever, driven in particular by APAC

and North America geography. The company has announced wage hike of

8-10% for offshore employees and 2% for onsite employees and is optimistic

about the demand scenario. We recommend Accumulate on the stock.Quarterly highlights: For 4QFY2012, Infotech reported revenue of US$83mn, up1.6% qoq, on the back of 2.1% qoq volume growth. In INR terms, revenue came

in at `417cr, up 0.2% qoq. The companys EBITDA and EBIT margins declined by

75bp and 5bp qoq to 19.8% and 17.7%, respectively, largely because of qoq INR

appreciation against USD. PAT stood high at `70cr in 4QFY2012 vs. `34cr in

3QFY2012 because of huge other income of `35cr in 4QFY2012 vs. loss of

`23cr in 3QFY2012.Outlook and valuation: Infotech has been witnessing a 4.6% CQGR in its USD

revenue over 2QFY20114QFY2012 because of inorganic growth due to the

acquisition of Daxcon and Wellsco. The company is on the right track in terms of

making investments to strengthen its product portfolio and is taking initiatives to

improve its financial metrics. Management indicated that it has not witnessed any

change in the demand scenario and expects to grow at 19-20% in constant

currency terms in FY2013. Over FY2012-14E, we expect the company to post a

USD and INR revenue CAGR of 11.5% and 12.7%, respectively. For FY2013,

management expects operating margins to exit at 17-17.5%. We expect EBITDA

and PAT CAGR to be at 10.0% and 12.5%, respectively, over FY2012-14E.

We value Infotech at 9.5x FY2014E EPS of `18.6, which gives us a target price of`177, and recommend Accumulate on the stock.Key financials (Consolidated)Y/E March (` cr) FY2010 FY2011 FY2012E FY2013E FY2014ENet sales 953 1,188 1,553 1,758 1,972% chg 7.1 24.6 30.7 13.2 12.2

Net profit 171 140 163 187 206% chg 85.0 (18.3) 16.7 14.6 10.5

EBITDA margin (%) 21.9 15.2 17.4 17.0 16.6

EPS (`) 15.4 12.6 14.5 16.8 18.6P/E (x) 10.8 13.3 11.5 9.9 9.0

P/BV (x) 2.0 1.8 1.6 1.4 1.2

RoE (%) 18.9 13.4 13.6 13.6 13.2

RoCE (%) 18.1 12.6 18.5 17.7 16.9

EV/Sales (x) 1.5 1.2 0.9 0.7 0.5

EV/EBITDA (x) 6.8 7.8 4.9 4.0 3.2

Source: Company, Angel Research

ACCUMULATECMP `167

Target Price `177

Investment Period 12 Months

Stock Info

Sector

Bloomberg Code

Shareholding Pattern (%)

Promoters 22.9

MF / Banks / Indian Fls 6.9

FII / NRIs / OCBs 25.4

Indian Public / Others 44.9

Abs. (%) 3m 1yr 3yr

Sensex 5.7 (8.9) 57.8

Infotech 31.5 6.7 222.1

Face Value (`)

IT

Avg. Daily Volume

Market Cap (`cr)

Beta

52 Week High / Low

1,870

0.5

5

173/100

30,569

BSE SensexNifty

Reuters Code

INFTC@IN

17,3925,300

INFE.BO

Ankita Somani+91 22 3935 7800 Ext: 6819

[email protected]

Infotech EnterprisesPerformance Highlights

4QFY2012 Result Update | IT

April 18, 2012


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Infotech Enterprises | 4QFY2012 Result Update

April 18, 2012 2

Exhibit 1:4QFY2012 Financial performance

Y/E March (` cr) 4QFY12 3QFY12 % chg (qoq) 4QFY11 % chg (yoy) FY2012 FY2011 % chg (yoy)Total revenue 417 417 0.2 326 28.1 1,553 1,188 30.7Salary cost 247 246 0.4 202 22.3 946 735 28.8Gross profit 170 170 (0.0) 124 37.6 607 453 33.9

Gross margin (%) 40.8 40.9 (10)bp 37.9 282bp 39.1 38.1 93bp

Travel expenditure 25 23 6.9 21 15.1 95 76 24.5

Purchase of products 7 12 (39.4) 11 (32.1) 41 11 277.6

Other operating costs 55 49 12.5 44 24.3 49 152 (67.7)

EBITDA 83 86 (3.4) 47 77.0 270 180 49.9EBITDA margin (%) 19.8 20.6 (75)bp 14.3 548bp 17.4 15.2 223bp

Dep. and amortization 11 14 (20.3) 12 (7.6) 49 49 1.7

EBIT 71 71 (0.1) 34 107.2 221 132 67.7

EBIT margin (%) 17.1 17.1 (5)bp 10.6 653bp 14.2 11.1 314bp

Financial expenses 0 0 1 (42.9) 1 2 (11.0)

Other income 35 (23) 5 597.4 17 30 (43.0)

Profit before tax 106 48 120.5 39 172.9 236 160 48.0

Tax 38 17 123.7 4 866.5 84 27 209.6

PAT 66 31 113.6 35 89.3 153 133 15.2

Share of profits of associates 4 3 29.6 2 78.2 - - -

Minority interest - 0 0 (10) (7) 45.1

Final PAT 70 34 106.7 37 88.9 163 140 16.7PAT margin (%) 15.4 8.6 720bp 11.2 462bp 10.4 11.5 (109)bp

EPS(`) 6.3 3.1 103.2 3.3 89.2 14.5 12.6 15.2


Exhibit 2:4QFY2012 Actual vs. Angel estimates

(` cr) Actual Estimate % VarNet revenue 417 420 (0.6)

EBITDA margin (%) 19.8 19.7 7bp

PAT 70 47 47.9


In-line performance

For 4QFY2012, Infotech reported revenue of US$83mn, up 1.6% qoq, on the

back of 2.1% qoq volume growth. The NCE vertical witnessed volume growth of

2.1% qoq and the ENGG vertical reported 2.1% qoq volume growth.

In INR terms, revenue came in at `417cr, up merely 0.2% qoq, on account of

1) 2.1% qoq volume growth, 2) 0.7% qoq positive impact because of increased

price realization and 3) 2.6% qoq negative impact due to exchange rates.


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April 18, 2012 3

Exhibit 3:Volume growth trend (Segment wise, qoq)


Exhibit 4:Revenue growth trend


NCE: During the quarter, the NCE verticals revenue increased by 1.6% qoq toUS$25.4mn. In INR terms, revenue came in at `128cr, up merely 0.3% qoq, on

the back of 2.1% qoq volume growth and 1.8% qoq negative impact due to INR

appreciation against USD. The company continues to see good traction from theU.S. in this vertical, benefiting from the ramp-up in the projects from the three

clients that the company acquired in 3QFY2012. Deal pipeline in this vertical

remains robust from APAC; however, deals from EMEA are now showing initial

signs of picking up. Infotech added seven new clients in the NCE vertical during

4QFY2012.

(3.7)

4.4

6.4

2.0 2.1

5.76.3

4.1 2.3

3.3

(4)

0

4

8

4QFY11 1QFY12 2QFY12 3QFY12 4QFY12

(%)

NCE ENGG

71.9

77.5

81.4 81.783.0

2.9

7.8

5.0

0.4

1.6

0

12

3

4

5

6

7

8

9

50

55

60

65

70

75

80

85


(%)

(US$mn)

Revenue (USD terms) qoq growth (%)


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April 18, 2012 4

Exhibit 5:NCE vertical Revenue growth trend


ENGG: The ENGG verticals revenue grew by 1.6% qoq to US$57.6mn. In INRterms, revenue came in at `290cr, up merely 0.2% qoq, on the back of 2.1% qoq

volume growth, 1.0% qoq positive impact from increased price realization and

2.9% qoq negative impact due to INR appreciation against USD. Infotech added

nine new clients in this vertical during the quarter.

Exhibit 6:ENGG vertical Revenue growth trend


Hiring momentum continues

During 4QFY2012, Infotech continued its hiring trend in the NCE vertical, adding

54 employees on the base of 4,131 people to map the demand witnessed in this

vertical. The ENGG vertical, which witnessed employee rationalization in

2QFY2012 and 3QFY2012, witnessed net addition of 93 employees in its

employee base in 4QFY2012, taking its total employee base to 4,508.

The company hired 662 gross employees in 4QFY2012, and management

indicated that net hiring for FY2013 would be ~1,500 people. The companys

attrition rate (annualized basis) declined to 17.5% in 4QFY2012 from 19.0% in3QFY2012.

22.2

23.8

25.1 25.025.4

(2.5)

7.1

5.4

(0.3)1.6

(4)

(2)

0

2

4

6

8

16

17

18

19

20

21

22

23

24

25

26


(%)

(US$mn)


49.8

53.7

56.3 56.757.6

5.5

7.9

4.9

0.71.6

0

1

2

3

4

5

6

7

8

9

40

42

44

46

48

50

52

54

56

58

60


(%)

(US$mn)



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April 18, 2012 5

Exhibit 7:Trend in hiring

4QFY11 1QFY12 2QFY12 3QFY12 4QFY12Net additionsNCE (33) (21) 259 179 54ENGG 306 160 (15) (95) 93

Support 54 25 (6) - (10)

Total employeesNCE 3,714 3,693 3,952 4,131 4,185

ENGG 4,365 4,525 4,510 4,415 4,508

Support 632 657 651 651 641


Utilization level for the NCE vertical decreased to 82% in 4QFY2012 from 88% in

3QFY2012 because of ramp down in BT business. Utilization level of ENGG

increased to 73% in 4QFY2012 from 72% in 3QFY2012, respectively, as freshers

hired in the past six months turned billable.

Exhibit 8:Trend in utilization (Segment wise)


Margins decline

For 4QFY2012, EBITDA and EBIT margins of Infotech declined by 75bp and 5bp

qoq to 19.8% and 17.1%, respectively, largely on the back of INR appreciation

against USD. Going ahead, the company is looking to improve its utilization level

in both the verticals (NCE and ENGG), right-size its employee pyramid by adding

more freshers into the system and improve onsite-offshore mix, which will in turn

improve operating margins and aid profitability.

Infotech has announced wage hike of 8-10% for offshore employees and 2% for

onsite employees, which will negatively affect the companys operating margin by

250-300bp qoq in 1QFY2013.

83

86

9088

82

7574

7372

73

65

70

75

80

85

90

95


(%)

NCE ENGG


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April 18, 2012 6

Exhibit 9:Trend in margins


Outlook and valuation

Infotech has been witnessing a 4.6% CQGR in its USD revenue over

2QFY20114QFY2012 because of inorganic growth due to the acquisition of

Daxcon and Wellsco. The company is on the right track in terms of making

investments to strengthen its product portfolio and is taking initiatives to improve its

financial metrics. Management indicated that it has not witnessed any change in

the demand scenario and expects to grow at 19-20% in constant currency terms in

FY2013. The company has got price increase from some of its selective clients,

which instills confidence in the companys performance going ahead. So, overFY2012-14E, we expect the company to post a USD and INR revenue CAGR of

11.5% and 12.7%, respectively.

The companys operating margin has improved considerably in FY2012 to 17.4%

from 15.2% in FY2011 because of INR depreciation. This year, management

expects operating margins to exit at 17-17.5%, despite wage hikes given in

FY2013 (offshore: 8-10% and onsite: 2%), by using levers such as improving

utilization level, rationalizing SG&A expenses and shifting more work offshore.

Because of wage hike, we expect EBITDA margin to decline by 300bp qoq in

1QFY2012 and recover back to 17.0% in FY2013. We expect EBITDA and PAT

CAGR to be at 10.0% and 12.5%, respectively, over FY2012-14E.

We value the company at 9.5x FY2014E EPS of `18.6, which gives us a targetprice of `177, and recommend Accumulate on the stock.

14.3

12.5

15.7

20.619.8

10.69.2

12.4

17.1 17.1

5

10

15

20

25


(%)

EBITDA margin EBIT margin


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April 18, 2012 7

Exhibit 10:Key assumptions

FY2013 FY2014Revenue growth (USD) 10.9 12.2

Revenue growth (INR) 13.2 12.2EBITDA margin (%) 17.0 16.6

EBIT margin (%) 13.8 13.4

Tax rate (%) 33.5 32.5

PAT growth (%) 15.7 10.5


Exhibit 11:Change in estimates

FY2013E FY2014EParameter Earlier Revised Variation Earlier Revised Variation(` cr) estimates estimates (%) estimates estimates (%)Net revenue 1,766 1,758 (0.5) 1,979 1,972 (0.3)

EBITDA 300 299 (0.5) 332 327 (1.5)

PBT 254 266 4.6 281 291 3.4

Tax 80 89 11.2 90 95 5.0

PAT 184 187 1.4 201 206 2.5


Exhibit 12:One-year forward PE (x) chart


0

50

100

150

200

250

300

350

400

Apr-07

Oct-07

Apr-08

Oct-08

Apr-09

Oct-09

Apr-10

Oct-10

Apr-11

Oct-11

Apr-12

(`)

Price 18x 14x 10x 6x 2x


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April 18, 2012 8

Exhibit 13:Recommendation summary

Company Reco. CMP Tgt. price Upside FY2014E FY2014E FY2011-14E FY2014E FY2014E(`) (`) (%) EBITDA (%) P/E (x) EPS CAGR (%) RoCE (%) RoE (%)

HCL Tech Accumulate 496 560 13.0 17.4 11.5 17.0 20.4 21.3Hexaware Neutral 125 - - 18.3 12.1 53.4 24.1 21.6

Infosys Buy 2,373 2,792 17.7 30.6 13.6 13.4 22.8 20.8

Infotech Entp. Accumulate 167 177 6.0 16.6 9.0 13.9 16.9 13.2KPIT Cummins Buy 79 98 24.1 14.9 7.3 (1.4) 20.0 18.0

Mahindra Satyam Accumulate 78 89 14.2 15.0 9.4 25.3 11.4 13.0

MindTree Accumulate 527 585 11.1 15.5 9.0 32.9 19.8 17.0

Mphasis Accumulate 380 433 14.0 17.9 9.2 1.7 14.1 13.7

NIIT^ Buy 48 61 28.0 16.9 5.2 18.0 11.5 19.0

Persistent Accumulate 335 352 5.1 20.8 8.6 3.8 16.1 13.8

TCS Buy 1,097 1,360 24.0 28.9 15.7 16.1 30.6 29.9

Tech Mahindra Accumulate 712 750 5.3 15.7 8.2 20.8 12.9 18.0

Wipro Accumulate 427 463 8.4 19.3 14.1 11.8 14.1 19.3

Source: Company, Angel Research; Note: Valued on SOTP basis


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April 18, 2012 9

Profit and Loss statement

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014ENet sales 953 1,188 1,553 1,758 1,972Cost of revenues 543 735 946 1,079 1,219Gross profit 410 453 607 679 753

% of net sales 43.1 38.1 39.1 38.6 38.2

Selling and mktg. expense 87 119 136 158 177

% of net sales 9.2 10.0 8.8 9.0 9.0

General and admin expense 115 154 200 221 248

% of net sales 12.0 12.9 12.9 12.6 12.6

EBITDA 208 180 270 299 327% of net sales 21.9 15.2 17.4 17.0 16.6

Dep. and amortization 44 49 49 56 63

% of net sales 4.6 4.1 3.2 3.2 3.2

EBIT 165 132 221 243 264

% of net sales 17.3 11.1 14.2 13.8 13.4

Other income 46 30 17 25 28

Interest expenses 3 2 1 1 1

Profit before tax 208 160 236 266 291

Exceptional item 2

Provision for tax 51 27 84 89 95

% of PBT 24.3 16.9 35.3 33.5 32.5

PAT 158 133 151 177 196

Minority interest (13) (7) (10) (10) (10)

Adj. PAT 171 140 163 187 206Fully diluted EPS (`) 15.4 12.6 14.5 16.8 18.6


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April 18, 2012 10

Balance sheet

Y/E March (` cr) FY2010 FY2011 FY2012E FY2013E FY2014EEquity capital 28 56 56 56 56

Share premium account 363 334 334 334 334Reserves and surplus 516 655 805 979 1,173

Shareholders funds 906 1,046 1,195 1,369 1,562Minority interest - -

Borrowings 4 0.6 0.6 0.6 -

Total capital employed 911 1,046 1,196 1,370 1,562Gross block 494 560 620 680 740

Accumulated depreciation 239 288 337 393 457

Net block 255 273 283 287 284

CWIP 61 65 65 65 80

Deferred tax asset 3 1.5 2.0 2.0 3.0

Investments 202 91 98 105 124

Sundry debtors 207 268 300 363 409

Cash and cash equivalents 234 350 426 564 684

Loans and advances 134 185 220 236 271

Prepaid and other current assets 33 34 28 15 9

Total current assets 606 929 1,071 1,283 1,497Sundry creditors and others 66 79 92 111 126

Other current liabilities 50 25 77 92 105

Provisions 101 118 57 63 70

Total current liab. and provisions 216 222 225 267 301

Net current assets 390 707 846 1,016 1,196Total capital deployed 911 1,046 1,196 1,370 1,562


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April 18, 2012 11

Cash flow statement

Y/E March (` cr) FY2010 FY2011 FY2012E FY2013E FY2014EPre-tax profit from oper. 162 130 220 241 263

Depreciation 44 49 49 56 63Exp. (deferred)/written off (13) (7) (10) (10) (10)

Pre tax cash from oper. 218 186 279 307 336

Other inc./prior period ad 46 30 17 25 28

Net cash from operations 265 215 296 332 364

Tax 51 27 84 89 95

Cash profits 214 188 212 243 269(Inc)/dec in

Sundry debtors 56 (61) (33) (62) (46)

Loans and advances (73) (51) (35) (17) (35)

Other current assets (33) (2) 7 13 6

Sundry creditors (16) 13 13 19 15

Others 9 (8) (10) 23 19

Net trade working capital (57) (109) (57) (25) (41)

Cash flow from oper. actv. 157 79 155 218 228(Inc)/dec in fixed assets (58) (71) (60) (60) (75)

(Inc)/dec in investments (162) 111 (7) (7) (19)

(Inc)/dec in dfrd. tax asst. 14 1 (1) - (1)

Cash flow from invest. actv. (207) 42 (67) (67) (95)Inc/(dec) in debt (15) (4) - - (1)

Inc/(dec) in equity/premium (22) 16 (0) (0) (0)

Dividends (13) (16) (13) (13) (13)

Cash flow from fin. actv. (50) (4) (13) (13) (14)Cash generated/(utilised) (100) 117 75 138 120Cash at start of the year 333 234 350 426 564

Cash at end of the year 234 350 426 564 684


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April 18, 2012 12

Key ratios

Y/E March FY2010 FY2011 FY2012E FY2013E FY2014EValuation ratio (x)P/E 10.8 13.3 11.5 9.9 9.0P/CEPS 8.6 9.8 8.7 7.6 6.9

P/BVPS 2.0 1.8 1.6 1.4 1.2

Dividend yield (%) 0.6 0.7 0.6 0.6 0.6

EV/Sales 1.5 1.2 0.9 0.7 0.5

EV/EBITDA 6.8 7.8 4.9 4.0 3.2

EV/Total assets 1.6 1.4 1.1 0.9 0.7

Per share data (`)EPS (Basic) 15.4 12.6 14.5 16.8 18.6

EPS (Fully diluted) 15.4 12.6 14.5 16.8 18.6

Cash EPS 19.3 17.0 19.1 21.9 24.3

Dividend 1.0 1.3 1.0 1.0 1.0

Book value 81.6 94.2 107.7 123.3 140.8

DuPont analysisTax retention ratio (PAT/PBT) 0.8 0.8 0.6 0.7 0.7

Cost of debt (PBT/EBIT) 1.3 1.2 1.1 1.1 1.1

EBIT margin (EBIT/Sales) 0.2 0.1 0.1 0.1 0.1

Asset turnover ratio (Sales/Assets) 1.0 1.1 1.3 1.3 1.3

Leverage ratio (Assets/Equity) 1.0 1.0 1.0 1.0 1.0

Operating ROE 17.4 12.7 12.7 12.9 12.6

Return ratios (%)RoCE (pre-tax) 18.1 12.6 18.5 17.7 16.9

Angel RoIC 39.8 24.4 36.4 38.1 39.1

RoE 18.9 13.4 13.6 13.6 13.2

Turnover ratios (x)Asset turnover (gross block) 1.9 2.1 2.5 2.6 2.7

Receivables days 90 73 67 69 71

Payable days 50 36 33 34 35


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A il 18 2012 13

Research Team Tel: 022 - 3935 7800 E-mail: [email protected] Website: www.angelbroking.com

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Disclosure of Interest Statement Infotech Enterprises

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors

Documents

Infotech Enterprises