CRISIL retains valuation grade of 5/5 to Omnitech Info

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CRISIL retains valuation grade of 5/5 to Omnitech Info

CRISIL Research has come out with its report on Omnitech Infosolutions. The research firm has maintained the fundamental grade of 3/5 to the company in its November 28, 2011 report.

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Omnitech Infoso BSE | NSE 30/05/12 Are Mutual Funds betting on Omnitech Infoso?

CRISIL Research has come out with its report on Omnitech Infosolutions . The research firm has maintained the fundamental grade of 3/5 to the company in its November 28, 2011 report.

Omnitech Infosolutions Ltd's (Omnitech's) consolidated revenue was in line with CRISIL Research's expectations. However, EBITDA was lower than expected as the company ramped up the employee base and increased offices in AsiaPacific for future growth opportunities. This coupled with lower revenue from Asia Pacific due to completion of a project-based contract resulted in losses from this region. Depreciation increased by ~10% q-o-q due to increase in asset base. Also, the company paid tax at the rate of 25.7% vs. our full-year estimate of ~31% since it claimed MAT credit. Consequently, PAT was inline with expectations. We maintain our revenue estimates but lower earnings estimates for FY12 and FY13. Also, the performance of Avensus (Europe-based subsidiary) remains a monitorable given the uncertain macroeconomic conditions. We maintain the fundamental grade of 3/5.

Q2FY12 result analysis
• Revenue increased by 4% q-o-q (50.7% y-o-y due to consolidation of Avensus) to Rs 1,230 mn mainly due to 6.6% q-o-q increase in revenue from India (~75% of total revenue in FY11).

• EBITDA declined by 2.5% q-o-q (up 15.3% y-o-y) to Rs 303 mn despite an increase in revenue. This was driven by higher employee cost, which increased by 12.6% q-o-q as the company ramped up its Asia Pacific operations. As a result, EBITDA margin declined by 170 bps q-o-q (758 bps y-o-y due to losses at Avensus) to 24.7%. As expected, Avensus continued to make losses at the EBITDA level in this quarter.

• Depreciation increased by 10% q-o-q due to increase in investments in cloud computing. Also, the tax rate for the quarter was 25.7%, down from ~33% in Q1FY12, as the company utilised its MAT credit entitlement. As a result, PAT increased by 4.7% q-o-q (down by 1.7% y-o-y) to Rs 139 mn despite a decline in EBITDA. PAT margin remained flat q-o-q (down by 605 bps y-o-y) at 11.3%. The company reported EPS of Rs 9.5.

Earnings estimates revised downwards
We maintain the revenue estimates for FY12 and FY13. EBITDA estimate for FY12 has been revised downwards due to investments in Asia Pacific while FY13 EBITDA estimate is unchanged. We have revised FY12 PAT estimate downwards by 8% to Rs 550 mn and FY13 PAT downwards by 7.4% to Rs 666 mn driven by higher depreciation due to higher capex and higher interest cost due to higher debt.

Valuations: Current market price has strong upside
We continue to use the discounted cash flow method to value Omnitech and maintain the fair value of Rs 254 per share. Consequently, we retain the valuation grade of 5/5.

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Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report.  The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.

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