infotech enterprises-1q fy 2014

7/28/2019 Infotech Enterprises-1Q FY 2014

1/13

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

Y/E March (` cr) 1QFY14 4QFY13 % chg (qoq) 1QFY13 % chg (yoy)Net sales 484 464 4.2 456 6.0

EBITDA 80 79 1.4 85 (5.9)

EBITDA margin (%) 16.6 17.0 (46)bp 18.7 (209)bp

Net profit 54 54 0.2 67 (18.4)

Source: Company, Angel Research

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 Neutralrating 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 abetter 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 atarget price of `190; we maintain our Neutral view on the stock.Key financials (Consolidated)Y/E March (` cr) FY2011 FY2012 FY2013E FY2014E FY2015ENet sales 1,188 1,553 1,873 2,052 2,263% chg 24.6 30.7 20.6 9.6 10.2

Net profit 140 163 233 229 250% chg (18.3) 16.7 42.9 (1.5) 8.8

EBITDA margin (%) 15.2 17.4 18.2 17.2 17.6

EPS (`) 12.6 14.5 20.7 20.7 22.5P/E (x) 14.6 12.7 8.9 8.9 8.2

P/BV (x) 2.0 1.7 1.5 1.3 1.1RoE (%) 13.4 13.6 17.6 14.9 14.0

RoCE (%) 12.6 18.5 20.9 18.2 17.9

EV/Sales (x) 1.3 1.0 0.8 0.6 0.5

EV/EBITDA (x) 8.9 5.6 4.4 3.7 2.8


NEUTRALCMP `184

Target Price -

Investment Period 12 Months

Stock Info

Sector

Net debt (`cr) (609)

Bloomberg Code

Shareholding Pattern (%)

Promoters 22.4

MF / Banks / Indian Fls 5.9

FII / NRIs / OCBs 29.9

Indian Public / Others 41.8

Abs. (%) 3m 1yr 3yr

Sensex 5.8 17.1 12.1

Infotech 12.9 2.1 7.6

INFTC@IN

20,128

6,038

INFE.BO

53,631

BSE Sensex

Nifty

Reuters Code

Face Value (`)

IT

Avg. Daily Volume

Market Cap (`cr)

Beta

52 Week High / Low

2,062

0.1

5

211/157

Ankita Somani+91 22 3935 7800 Ext: 6819

[email protected]

Infotech EnterprisesPerformance Highlights

1QFY2014 Result Update | IT

July 18, 2013


2/13

Infotech Enterprises | 1QFY2014 Result Update

July 18, 2013 2

Exhibit 1:1QFY2014 Financial performance

Y/E March (` cr) 1QFY14 4QFY13 % chg (qoq) 1QFY13 % chg (yoy) FY2013 FY2012 % chg (yoy)Total revenue 484 464 4.2 456 6.0 1,873 1,553 20.6Salary cost 309 285 8.1 276 11.7 1,126 946 19.0Gross profit 175 179 (2.1) 180 (2.7) 747 607 23.1

Gross margin (%) 36.2 38.6 (232)bp 39.5 (324)bp 39.9 39.1 80bp

Travel expenditure 22 25 (11.4) 25 (10.2) 98 95 3.3

Purchase of products 5 14 (64.6) 15 (66.5) 74 41 79.1

Other operating costs 68 61 12.2 55 23.4 233 200 16.5

EBITDA 80 79 1.4 85 (5.9) 342 270 26.3EBITDA margin (%) 16.6 17.0 (46)bp 18.7 (209)bp 18.2 17.4 82bp

Dep. and amortization 18 20 (7.5) 13 34.7 64 49 28.7

EBIT 62 60 4.3 72 (13.4) 278 221 25.8

EBIT margin (%) 12.8 12.8 1bp 15.7 (289)bp 14.8 14.2 61bp

Financial expenses 1 0 0 1,280.0 1 1 (11.7)

Other income 18 10 18 1.8 40 17 136.6

Profit before tax 80 69 15.1 90 (11.1) 317 237 33.9

Exceptional item - - 2 2 2

Tax 29 17 72.6 29 0.8 97 84 15.7

PAT 50 52 (3.8) 59 (14.3) 218 151 44.1

Share of profits of associates 4 2 101.5 6 (33.0) 13 10

Minority interest - - - - -

Adj. PAT 54 54 0.2 67 (18.4) 233 163 42.9PAT margin (%) 10.8 11.4 (61)bp 14.0 (321)bp 12.2 10.4 179bp

EPS(`) 4.9 4.9 0.2 5.8 (15.5) 20.7 14.5 42.8


Exhibit 2:1QFY2014 Actual vs Angel estimates

(` cr) Actual Estimate % VarNet revenue 484 498 (2.9)

EBITDA margin (%) 16.6 17.6 (103)bp

PAT 54 54 1.3


Weak revenue performance continues

For 1QFY2014, Infotech reported a revenue of US$86mn, up merely 0.1% qoq. In

constant currency terms, the revenue grew by 0.7% qoq. The revenue, this quarter,

has been impacted by ramp-downs seen in a few of companys top accounts. In

INR terms, the revenue came in at `484cr, up 4.2% qoq.


3/13


July 18, 2013 3

Exhibit 3:Revenue growth trend (qoq)


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 businesssegment 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.

Exhibit 4:UT and D&A vertical Revenue growth trend


ENGG: The ENGG verticals revenue declined by 0.8% qoq to US$55mn. In INRterms, 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.

84.2

87.2

87.6

85.9 86.0

1.4

3.5

0.5

(1.9)

0.1

(3)

(2)

(1)

0

1

2

3

4

82

83

84

85

86

87

88

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14

(%)

(US$mn)

Revenue (USD terms) qoq growth (%)

26.7

28.3

29.7 29.530.05.1

6.1

4.8

(0.8)

1.9

(2)

(1)

0

1

2

3

4

5

6

7

16

18

20

22

24

26

28

30

32


(%)

(US$mn)

Revenue (USD terms ) qoq growth (%)


4/13


July 18, 2013 4

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.

Exhibit 5:ENGG vertical Revenue growth trend


Hiring and utilization

During 1QFY2014, Infotech added 298 net employees, taking its total employee

base to 10,815. The UT and D&A vertical witnessed an addition of 192 net

employees, taking the verticals employee base to 5,268. Further, 53 net

employees were added in the ENGG vertical, taking the verticals total employee

base to 4,774. The companys attrition rate (annualized basis) inched up to 12.3%

in 1QFY2014 from 11.8 in 4QFY2013.

Exhibit 6:Trend in hiring

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14Net additionsUT and D&A 322 88 66 415 192

ENGG 111 191 (52) (37) 53

Support 31 16 27 5 53Total employeesUT and D&A 4,507 4,595 4,661 5,076 5,268

ENGG 4,619 4,810 4,758 4,721 4,774

Support 672 688 715 720 773


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.

57.758.8

56.955.5 55.0

0.1

2.0

(3.2) (2.5)

(0.8)

(4)

(3)

(2)

(1)

0

1

2

3

40

42

44

46

48

50

52

54

56

58

60


(%)

(US$mn)

Revenue (USD terms) qoq growth (%)


5/13


July 18, 2013 5

Exhibit 7:Trend in utilization (Segment wise)


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.

Exhibit 8:Trend in margins


Outlook and valuation

The company has been making investments, to strengthen its product portfolio,

and taking initiatives to improve its financial metrics. The Management expects

FY2014 turning out 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 tohire ~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

8485

83

80

83

71

73

71

68

66

65

70

75

80

85

90


(%)

UT and D&A ENGG

18.7 18.7 18.5

17.016.6

15.7 15.715.1

12.8 12.8

12

14

16

18

20


(%)

EBITDA margin EBIT margin


6/13


July 18, 2013 6

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 heavyengineering 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 givesus a target price of `190; we maintain our Neutral view on the stock.Exhibit 9:Key assumptions

FY2014 FY2015Revenue growth (USD) 2.7 10.2

Revenue growth (INR) 9.6 10.2

EBITDA margin (%) 17.2 17.6

EBIT margin (%) 13.7 14.1

Tax rate (%) 31.0 31.0

PAT growth (%) (1.5) 8.8



7/13


July 18, 2013 7

Exhibit 10:One-year forward PE (x) chart


Exhibit 11:Recommendation summary

Company Reco. CMP Tgt. price Upside FY2015E FY2015E FY2012-15E FY2015E FY2015E(`) (`) (%) EBITDA (%) P/E (x) EPS CAGR (%) EV/Sales (%) RoE (%)

HCL Tech Neutral 858 - - 22.0 13.5 20.7 1.6 21.7

Hexaware Neutral 105 - - 19.8 9.0 9.6 1.1 22.3

Infosys Neutral 2,800 - - 26.4 14.8 9.2 2.4 19.3

Infotech Entp. Neutral 184 - - 17.6 8.2 15.7 0.5 14.0KPIT Cummins Buy 125 144 15.0 16.7 8.7 21.6 0.6 16.7

MindTree Neutral 914 - - 20.2 9.4 21.8 0.9 19.5

Mphasis Neutral 421 - - 18.2 9.7 4.9 0.7 14.2

NIIT^ Buy 19 30 59.6 9.1 3.5 (7.1) (0.0) 11.9

Persistent Accumulate 529 595 12.5 26.2 8.9 19.0 0.8 16.7

TCS Accumulate 1,660 1,760 6.0 29.1 17.5 20.5 3.4 27.8

Tech Mahindra Accumulate 1,091 1,250 14.5 19.1 9.3 11.4 1.5 18.9

Wipro Neutral 385 - - 21.4 12.9 9.7 1.5 19.0

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

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

Oct-12

Apr-13

(`)

Price 18x 14x 10x 6x 2x


8/13


July 18, 2013 8

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).


9/13


July 18, 2013 9

Profit and Loss statement

Y/E March (` cr) FY2011 FY2012 FY2013 FY2014E FY2015ENet sales 1,188 1,553 1,873 2,052 2,263Cost of revenues 735 946 1,126 1,252 1,371Gross profit 453 607 747 800 891

% of net sales 38.1 39.1 39.9 39.0 39.4

Selling and mktg. expense 119 136 172 191 210

% of net sales 10.0 8.8 9.2 9.3 9.3

General and admin exp. 154 200 233 257 283

% of net sales 12.9 12.9 12.5 12.5 12.5

EBITDA 180 270 342 353 398% of net sales 15.2 17.4 18.2 17.2 17.6

Dep. and amortization 49 49 64 72 79

% of net sales 4.1 3.2 3.4 3.5 3.5

EBIT 132 221 278 281 319

% of net sales 11.1 14.2 14.8 13.7 14.1

Other income 30 17 40 34 25

Interest expenses 2 1 1 1 1

Profit before tax 160 236 317 314 343

Exceptional item 2 2

Provision for tax 27 84 97 97 106

% of PBT 16.9 35.3 30.5 31.0 31.0

PAT 133 151 218 217 237

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

Adj. PAT 140 163 233 229 250Fully diluted EPS (`) 12.6 14.5 20.7 20.7 22.5


10/13


July 18, 2013 10

Balance sheet

Y/E March (` cr) FY2011 FY2012 FY2013 FY2014E FY2015EEquity capital 56 56 56 56 56

Share premium account 334 334 4 4 4Reserves and surplus 655 805 1,266 1,483 1,719

Shareholders funds 1,046 1,196 1,326 1,542 1,779Minority interest - - - - -

Borrowings 0.6 0.6 3.2 - -

Total capital employed 1,046 1,196 1,329 1,542 1,779Gross block 560 620 759 819 879

Accumulated depreciation 288 337 401 473 552

Net block 273 283 358 346 327

CWIP 65 65 92 92 92

Deferred tax asset 1.5 2.0 3.8 3.8 3.8

Investments 91 98 61 91 121

Sundry debtors 268 300 401 475 543

Cash and cash equivalents 350 426 498 645 794

Loans and advances 185 220 59 94 129

Prepaid and other current assets 34 28 100 100 100

Total current assets 929 1,071 1,119 1,405 1,687Sundry creditors and others 79 92 121 140 155

Other current liabilities 25 77 75 117 129

Provisions 118 57 48 48 48

Total current liab. and provisions 222 225 245 305 332

Net current assets 707 846 875 1,100 1,356Total capital deployed 1,046 1,196 1,329 1,542 1,779


11/13


July 18, 2013 11

Cash flow statement

Y/E March (` cr) FY2011 FY2012 FY2013 FY2014E FY2015EPre-tax profit from oper. 130 220 277 280 318

Depreciation 49 49 64 72 79Exp. (deferred)/written off (7) (10) (13) (13) (13)

Pre tax cash from oper. 186 279 353 365 410

Other inc./prior period ad 30 17 40 34 25

Net cash from operations 215 296 393 399 435

Tax 27 84 97 97 106

Cash profits 188 212 296 301 329(Inc)/dec in

Sundry debtors (61) (33) (100) (74) (68)

Loans and advances (51) (35) 161 (35) (35)

Other current assets (2) 7 (73) - -

Sundry creditors 13 13 29 19 14

Others (8) (10) (10) 42 12

Net trade working capital (109) (57) 7 (49) (77)

Cash flow from oper. actv. 79 155 303 253 252(Inc)/dec in fixed assets (71) (60) (166) (60) (60)

(Inc)/dec in investments 111 (7) 37 (30) (30)

(Inc)/dec in dfrd. tax asst. 1 (1) (2) - -

Cash flow from invest. actv. 42 (67) (131) (90) (90)Inc/(dec) in debt (4) - 3 (3) -

Inc/(dec) in equity/premium 16 0 (89) 0 0

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

Cash flow from fin. actv. (4) (13) (100) (16) (13)Cash generated/(utilized) 117 75 73 146 149

Cash at start of the year 234 350 426 498 645

Cash at end of the year 350 426 498 645 794


12/13


July 18, 2013 12

Key ratios

Y/E March FY2011 FY2012 FY2013E FY2014E FY2015EValuation ratio (x)P/E 14.6 12.7 8.9 8.9 8.2

P/CEPS 10.9 9.6 6.9 6.8 6.2

P/BVPS 2.0 1.7 1.5 1.3 1.1

Dividend yield (%) 0.7 0.5 0.5 0.5 0.5

EV/Sales 1.3 1.0 0.8 0.6 0.5

EV/EBITDA 8.9 5.6 4.4 3.7 2.8

EV/Total assets 1.5 1.3 1.1 0.8 0.6

Per share data (`)EPS (Basic) 12.6 14.5 20.7 20.7 22.5

EPS (Fully diluted) 12.6 14.5 20.7 20.7 22.5

Cash EPS 17.0 19.1 26.7 27.1 29.6

Dividend 1.3 1.0 1.0 1.0 1.0

Book value 94.2 107.7 119.5 139.0 160.3

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

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

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

Asset turnover ratio (Sales/Assets) 1.1 1.3 1.4 1.3 1.3

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

Operating ROE 12.7 12.7 16.4 14.0 13.3

Return ratios (%)RoCE (pre-tax) 12.6 18.5 20.9 18.2 17.9Angel RoIC 24.4 36.4 41.0 39.4 41.3

RoE 13.4 13.6 17.6 14.9 14.0

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

Receivables days 73 67 68 78 82

Payable days 36 33 35 38 39


13/13


J l 18 2013 13

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

DISCLAIMERThis document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment

decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make

such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies

referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and

risks of such an investment.

Angel Broking Pvt. Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make

investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this

document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's

fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliablesources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as thisdocument is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any wayresponsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report .Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannottestify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document.While Angel Broking Pvt. Limited endeavours to update on a reasonable basis the information discussed in this material, there may beregulatory, compliance, or other reasons that prevent us from doing so.

This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,

redistributed or passed on, directly or indirectly.

Angel Broking Pvt. Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking

or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or

in the past.

Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from

or in connection with the use of this information.

Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to thelatest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates mayhave investment positions in the stocks recommended in this report.

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

infotech enterprises-1q fy 2014

Documents