Hold 3i Infotech; target of Rs 47: KRChoksey

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Hold 3i Infotech; target of Rs 47: KRChoksey

KRChoksey has recommended hold rating on 3i Infotech with a target of Rs 47, in its July 27, 2011 research report.

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KRChoksey has recommended hold rating on 3i Infotech with a target of Rs 47, in its July 27, 2011 research report.

"3i Infotech reported P&L line items excluding Regulus and J&B software and shown it as part of 'Discontinuing Operations' in P&L as against the management indication that Regulus and J&B Software will be shown as part of each line item. Adjusting for these changes revenue grew by 3.4% QoQ and 8.4% YoY to Rs.479.4 crore (on adjusted basis) in Q1FY12. The growth was primarily led by emerging markets in Q1FY12 on YoY basis; whereas developed market continued to register pressure and declined in Q1FY12 on YoY basis."

"The company expects flat growth from developed markets and around mid-teens growth from emerging market in FY12E (on adjusted basis). Moreover, it expects revenue from Transaction Services to remain flat or decline marginally in FY12E (on like-to-like basis). Taking this into account, we believe 3i Infotech's overall revenue growth rate will continue to lag overall Indian IT industry growth in FY12E and FY13E. The EBITDA margin improved by 57 bps YoY to 21.8% in Q1FY12 marginally better than our expectation primarily led by increase in revenue share of IT Solutions which has relatively higher margins than Transaction services. We believe, going forward, EBITDA margins will continue to improve primarily led by increase in revenue share of higher margin segment i.e. IT Solutions. The net profit margin improved by 116 bps YoY to 9.6% in Q1FY12; despite decline in other income (due to forex loss of Rs 2.4 crore in Q1FY12) and increase in interest expense by 15.2% YoY, supported by significant decline in depreciation cost (i.e. 22.5% YoY growth). The net profit margin will improve in coming quarters due to decline in interest cost by Rs.10 crore because of the recent repayment of Rs. 500 crore (interest rate of around 8% p.a.) loans from the consideration received on the divestment of 100% stake in Regulus and J&B Software."

"Considering, slower revenue growth than peers in FY12E and high debt position beyond our comfort zone, we maintain our "HOLD" recommendation on the stock. Taking the same into account, we assign the company multiple of 6x to its FY13E EBITDA and arrive at a target price of Rs 47," says KRChoksey research report.

Non-Institutions holding more than 90% in Indian cos

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To read the full report click on the attachment