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Infotech Enterprises

Infotech Enterprises.

Infotech's results for 4QFY09 were a mixed bag; while revenue growth (1% QoQ) was modestly below estimate, EBITDA surprised positively with a 230bps gain QoQ. PBT was however below estimates given higher losses in the other income line. PAT (up 28% QoQ) came in at lower than estimate, aided by a deferred tax write back.

Within verticals EMI was flattish QoQ; this vertical contributes c66% of company revenues. UTG vertical on the other hand grew by 2% QoQ. Volumes de-grew for the quarter by 0.5%; revenues were helped by the favourable INR (+0.3%) and price variation (+1.2%). Management in its commentary has outlined that the global economic slowdown is having a visible impact on client spends with additions/ ramp ups taking a hit.

IEL, thus far had not seen sizeable client issues in its lines of business given its differentiated focus and also given the fact that engineering design (ED) spends have been relatively resilient, especially in the GIS business. Given the significant slowdown facing the global economy, the macro environment for IT services players has turned more challenging with limited visibility on client spends.

IEL also has a sizeable amount of project based revenues (in UTG) that likely make it more vulnerable to contraction in spends. Client concentration for IEL (Top 5 makes 41% of revenues) also remains high. We can expect an FY10E EPS of Rs.17.1 , an EPS growth of 3%. The fair value of the stock works out to Rs.174.