Infotech Enterprises Makes A Good Short-Medium Term Buy

Infotech Enterprises announced their Q2FY13 results on October 17, 2012. This sent the stock price touching an intraday high of Rs.198.9 a piece, up by 4.14 per cent. Though the bottomline of the company saw a decline of as much as 23.33 per cent topline growth was healthy and volume driven. Moreover, the management expressed their confidence in achieving the targeted growth rate of 11 to 14 per cent.

Infotech Enterprises had revenues growing by 3.56 per cent, sequentially increasing from USD 87.2 million in Q2FY13 to 84.2 million in Q1FY13. The increase in EBIT was in line with this, thus keeping the operating profit margin constant, it having increased by 4 basis points to 18.69 per cent. The net profit of the company though declined to USD 9.2 million in Q2FY13 from USD 12 million in Q1FY13. This had the net profit margin decreasing by 370 basis points. This drop was on account of foreign exchange losses accrued for by the company due to an appreciation in rupee as in Q2FY13 as compared to the depreciation seen in the previous quarter.

In terms of business units, all the four divisions (Aerospace, Heavy Equipment, Transport and Hi-Tech, Utilities, Telecom and Content Engineering) of Infotech Enterprises saw growth in terms of revenues and volume. Overall, in rupee terms, the revenue growth was 4.5 per cent and the volume growth was 3.9 per cent. At the same time, there was a price reduction of 0.3 per cent and the exchange rate impact was to the extent of 0.9 per cent. The company, in all, added 17 customers. While 9 were in the Engineering Business Unit (Aerospace and Heavy Equipment, Transport and Hi-Tech), 8 were in UT&C (Utilities, Telecom and Content Engineering).

Apart from this, what added value to this result announcement was the fact that the company is poised to grow in the coming quarters. The management has seen good traction from Europe and stability in terms of demand from the U.S. Geographically, APAC turned out to be the fastest growing for Infotech, led by Australia and Japan.

The company has a healthy order pipeline and is optimistic about improvement in the business environment. It is in the final stages of closure and is expected to close a few prospects by Q3. Of the client acquisitions, the company also acquired two key customers, one in rail transportation and one in the semiconductor segment which are expected to boost Q3 and Q4 results.

On the operational front, H1FY13 saw a net addition of 759 employees making the total staff go beyond the 10000 mark. Infotech also operationalised facilities at the SEZ in Hyderabad. This SEZ was staffed with 426 seats. At the same time, the progress at the SEZs at Kakinada and Noida has been on track and will be complete by Q3 and Q4 respectively.

These factors together give a clear picture about the flow of orders and the optimism of the management over the business environment. It also highlights the good prospects the company has in Q3 and Q4. We think favourable positioning, progress so far on operationalisation and deal wins are in favour of the company. This would prospectively yield in the short run resulting in a probability of higher growth in the second half of this year as compared to the first. We thus have a positive short term to medium term outlook on this company.