Result Update: Infotech Enterprises
• Infotech’s results for 2QFY10 were inline with expectations on the revenue line and operational front. Revenues grew 2.1% QoQ; EBITDA de-grew marginally QoQ as margins expectedly moderated 80bps QoQ. Business volumes were flattish QoQ; cross currency benefits impacted revenues positively by 2.1%, and contributed to all of the growth seen in the quarter.
• Reported PAT at Rs.353.3mn was above the estimated Rs.325mn, only on account of higher other income. Net other income for the Q (Rs.44.6mn) included Rs.72.5mn towards reversal of provision for MTM losses on forward contracts and Rs.84mn towards loss on forward contracts.
• Modify earnings to factor in Q2FY10 numbers; expect an FY10E EPS of Rs.26.1 (Rs.24 earlier). In FY11E, we expect revenues to grow 13% YoY; margins are likely to taper from FY10E levels given our assumptions on the INR, likely peak utilizations, wage inflation and increasing S&M investments, given an improving demand environment. Expect an FY11E EPS of Rs.28, 8% higher than FY10E EPS.
•Investors can Buy the stock with a price target of Rs.310, with a long term view. Exit multiple works out 11x FY11E EPS, a 45% discount to sector leaders.