Buy Infinite Computer; target of Rs 206: SPA Research

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Buy Infinite Computer; target of Rs 206: SPA Research

SPA Research is bullish on Infinite Computer Solutions India and has recommended buy rating on the stock with a target of Rs 206 in its February 14, 2012 research report.

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SPA Research is bullish on Infinite Computer Solutions India and has recommended buy rating on the stock with a target of Rs 206 in its February 14, 2012 research report.

"Infinite Computers (ICSL) came out with its 3QFY12 results marred by delays in government based APDRP project. The company recorded revenues of $52.8mn, down 6% QoQ and up 7.3% YoY. However, operating margins improved by 310bps to 20.0% due to improved pricing mix, operational efficiency and INR depreciation. Factoring the inconsistent nature of the business, we have lowered our target multiple to 6x for FY13E earnings revising our target price to INR 206."

"ICSL recorded 3QFY12 revenue of INR 2,695Mn, up 5.0% QoQ and 21.2% YoY. This below expectation (est. INR 2,850Mn) revenue was a result of delay in realization from the APDRP govt. project. It was also affected by transitioning of a BOT project based in Europe which would be over by May'12. Thus a QoQ decline of c.25% in Europe and c.47% in India dragged the overall revenues of the company down. ICSL witnessed a 310bps improvement in its EBITDA Margins aided by operational efficiency, improved pricing mix (4.7% onsite and 5.3% offshore) and currency depreciation (11.55%). Operational efficiency improved as a result of (i) transitioning, causing high cost onsite employees to move out (ii) increased contribution from IP leveraged revenue sharing business and (iii) sustained high utilization at 90%."

"ICSL continues to witness high attrition rate (21%), causing a decrease in headcount by 280. The company indicated for a drop in utilization in the next few quarters on the back of increased hiring and volume growth. The company added 5 new clients and saw one client graduate to >$20Mn revenue yearly contribution which now stands at 4. The company has completed its Buy Back program spending INR 163Mn (1.4Mn Shares at an average price of INR 116.4 per share). The promoter group, MC Data Systems, have further bought 300,000 shares from open market taking their total shareholding to c.67%. The company has also declared an interim dividend of INR 4.0 per share."

"ICSL has been marred by one problem after the other thus lacking a consistent run of stable revenue growth. Due to this inconsistency in the business mix, we have revised our FY13 PE multiple downwards. However we expect the company to get back on a steady growth trajectory in the next few quarters buoyed by a strong deal pipeline. The stock presently trading at 2.4x multiple of FY13E earnings of INR 34.4 has a minimum downside risk from here. Thus, we retain BUY recommendation on the stock with a 15 month target price of INR 206.0 based on 6x FY13E earnings," says SPA Research report.   

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To read the full report click on the attachment