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Infotech Enterprises-1Q FY 2014
Infotech Enterprises-1Q FY 2014
Infotech Enterprises-1Q FY 2014
Infotech Enterprises
Performance Highlights
Y/E March (` cr) Net sales EBITDA EBITDA margin (%) Net profit 1QFY14 484 80 16.6 54 4QFY13 464 79 17.0 54 % chg (qoq) 4.2 1.4 (46)bp 0.2 1QFY13 456 85 18.7 67 % chg (yoy) 6.0 (5.9) (209)bp (18.4)
NEUTRAL
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 2,062 (609) 0.1 211/157 53,631 5 20,128 6,038 INFE.BO INFTC@IN
`184 12 Months
For 1QFY2014, Infotech Enterprises (Infotech) reported a weak set of results on the revenue as well as the bottom-line front. The company witnessed challenges in some of its top-10 client accounts. However, the Management indicates that the challenges seen in few of its large client accounts are behind and is confident of the company growing better in the next few quarters. We maintain our Neutral rating on the stock. Quarterly highlights: For 1QFY2014, Infotech reported a revenue of US$86mn, up merely 0.1% qoq. In INR terms, the revenue came in at `484cr, up 4.2% qoq. The EBITDA margin of the company declined by 46bp qoq to 16.6%, while its EBIT margin was almost flat sequentially at 12.8%. The companys operating margin faced headwinds in the form of a muted volume growth, wage hikes given during the quarter and healthy gross employee addition. The PAT came in at `54cr, almost flat qoq; other income stood at `18cr as against `10cr in 4QFY2013. Outlook and valuation: The Management pointed that it expect FY2014 to be a better year than FY2013 and is trying to move out of client specific issues in aero, hi-tech and rail business areas. The company plans to hire ~2,500 gross employees while it estimates attrition to be at ~15%. For FY2014, in the ENGG vertical, the Management indicated at a good deal pipeline in the aerospace business segment and sees signs of growth in the transportation business segment owing to recovery in the logistics and transportation industry. In the network and utilities business area, Infotech is working on new service offerings to capture the opex of client budgets along with the capex portion, that the company is targeting currently. Over FY2013-15, we expect the company to post a USD and INR revenue CAGR of 6.4% and 9.9%, respectively. We expect EBITDA margin of the company to move to 17.2% in FY2014 and 17.6% in FY2015 from 18.2% in FY2013. At the current market price of `184, the stock is trading at 8.2x FY2015E EPS. We value the company at 8.5x FY2015E EPS of `22.5, which gives us a target price of `190; we maintain our Neutral 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 14.6 2.0 13.4 12.6 1.3 8.9 FY2012 1,553 30.7 163 16.7 17.4 14.5 12.7 1.7 13.6 18.5 1.0 5.6 FY2013E 1,873 20.6 233 42.9 18.2 20.7 8.9 1.5 17.6 20.9 0.8 4.4 FY2014E 2,052 9.6 229 (1.5) 17.2 20.7 8.9 1.3 14.9 18.2 0.6 3.7 FY2015E 2,263 10.2 250 8.8 17.6 22.5 8.2 1.1 14.0 17.9 0.5 2.8
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 22.4 5.9 29.9 41.8
3m 5.8 12.9
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)
UT and D&A: During the quarter, the utilities, telecom, and data transformation & analytics (UT and D&A) verticals USD revenue grew by 1.9% qoq to US$30.0mn. In INR terms, the revenue came in at `169cr, up 6.0% qoq. Growth in this vertical was driven by ramp-ups in projects from Australia. The utilities and telecom business segment witnessed a USD and INR revenue growth of 0.8% and 4.8% qoq, respectively. Infotech exceeded its 1QFY2014 revenue targets for utilities and telecom business segment, helped by a particularly strong performance from two of its clients in the APAC region. The Management indicated that in this business segment, broadband and backhaul plan and design services remain in high demand across all geographies. The company renamed its Content business segment as Data Transformation & Analytics during the quarter. The D&A business segment reported a revenue growth of 4.1% and 8.3% qoq in USD and INR terms, respectively. Overall, the company added five new clients in the UT and D&A business vertical during the quarter.
(US $mn)
26 24 22 20 18 16
2 1 0
(0.8) 1QFY13 2QFY13 3QFY13 Revenue (USD terms) 4QFY13 1QFY14 qoq growth (%)
(1) (2)
ENGG: The ENGG verticals revenue declined by 0.8% qoq to US$55mn. In INR terms, the revenue came in at `310cr, up 3.2% qoq. In this vertical, the aerospace business segment witnessed a USD revenue decline of 0.4% qoq while in INR terms, the revenue grew by 3.6% qoq, aided by INR depreciation against the USD.
July 18, 2013
(%)
(%)
0.5
Over the last couple of quarters, some of the companys top-10 accounts in this vertical have been facing challenges; the impact of such sluggishness percolated in 1QFY2014 results as well. The hi-tech, transportation and heavy engineering (HTH) business segment witnessed a revenue decline of 1.2% qoq in USD terms. Overall the company added five new clients in the ENGG vertical.
(US $mn)
1QFY14
The utilization level for the UT and D&A vertical increased by ~300bp qoq to 83%, while utilization level for the ENGG vertical declined by ~200bp qoq to 66% due to lower volumes.
(%)
52
(%)
75 70 65 1QFY13 2QFY13 3QFY13 UT and D&A
Source: Company, Angel Research
Margins decline
For 1QFY2014, the EBITDA margin of the company declined by 46bp qoq to 16.6%, while EBIT margin was almost flat sequentially at 12.8%. The companys operating margin faced headwinds in the form of a muted volume growth, wage hikes given during the quarter and healthy gross addition of 763 employees into the system. The Management indicated that the company is focused to improve its operating margin going ahead as the major headwind of wage hike is now behind.
16.6
(%)
16 15.7 14 15.7 15.1 12.8 12 1QFY13 2QFY13 EBITDA margin 3QFY13 4QFY13 EBIT margin 1QFY14 12.8
business segment owing to recovery in the logistics and transportation industry. The Management cited that it is seeing initial signs of recovery in the hi-tech business segment with stability coming in the top three customers of this business area but continues to see market volatility impacting client spends. The heavy engineering business area is still looking soft, especially the mining segment. In the UT and D&A business verticals, for FY2014, Infotech is working on new service offerings to capture the opex of client budgets along with the capex portion, that the company is targeting currently. 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 6.4% and 9.9%, 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 1QFY2014, the operating margins of the company faced headwinds of wage hikes, but going ahead it has margin levers 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 17.2% in FY2014 and 17.6% in FY2015 from 18.2% in FY2013. At the current market price of `184, the stock is trading at 8.9x FY2014E and 8.2x FY2015E EPS. We value the company at 8.5x FY2015E EPS of `22.5, which gives us a target price of `190; we maintain our Neutral view on the stock.
(` )
Oct-07
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2x
Apr-07
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Source: Company, Angel Research
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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 - UT and D&A (contributing ~31% to revenue) and 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 1,196 0.6 1,196 620 337 283 65 2.0 98 300 426 220 28 1,071 92 77 57 225 846 1,196 FY2013 56 4 1,266 1,326 3.2 1,329 759 401 358 92 3.8 61 401 498 59 100 1,119 121 75 48 245 875 1,329 FY2014E 56 4 1,483 1,542 1,542 819 473 346 92 3.8 91 475 645 94 100 1,405 140 117 48 305 1,100 1,542 FY2015E 56 4 1,719 1,779 1,779 879 552 327 92 3.8 121 543 794 129 100 1,687 155 129 48 332 1,356 1,779
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 2.5 78 38 2.6 82 39 12.6 24.4 13.4 18.5 36.4 13.6 20.9 41.0 17.6 18.2 39.4 14.9 17.9 41.3 14.0 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 14.0 0.7 1.1 0.1 1.3 1.0 13.3 12.6 12.6 17.0 1.3 94.2 14.5 14.5 19.1 1.0 107.7 20.7 20.7 26.7 1.0 119.5 20.7 20.7 27.1 1.0 139.0 22.5 22.5 29.6 1.0 160.3 14.6 10.9 2.0 0.7 1.3 8.9 1.5 12.7 9.6 1.7 0.5 1.0 5.6 1.3 8.9 6.9 1.5 0.5 0.8 4.4 1.1 8.9 6.8 1.3 0.5 0.6 3.7 0.8 8.2 6.2 1.1 0.5 0.5 2.8 0.6 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