Hold Geometric; target of Rs 75: PINC Research

“Geometric, revenue grew 4.2%QoQ to Rs 1,700 million (PINCe – Rs1,721 million) led by volume growth. EBITDA margin improved 96bpsQoQ to 13.3% in-line with our expectation. Forex gain of Rs 60.4 million supported the bottom line to grow by 17%QoQ to Rs 179 million. EPS for Q4 was Rs 2.8 (PINCe Rs 2.4). For FY11, revenue increased 26.3%YoY to USD 136.5 million and EPS was Rs 9.15 (21.8%YoY growth) boosted by forex gains. Europe grew by 9.6%QoQ and is further expected to improve revenue in software services and engineering services; US grew by 3.1%QoQ. Automotive grew 7.7%QoQ and Agri & construction equipment has grown 24.7%QoQ. Others (emerging verticals) grew 19.3%QoQ.”

“Engg. Services grew 12.3%QoQ and there was a decline in Products (IP) by 4.3%QoQ while software services remained flat at 0.4%QoQ. Revenue from new business contributed 8.2% of revenue led by robust order book. 5 new clients were added. Top clients revenue was USD 9.1 million (4.4%QoQ). Top 10 and Non-Top 10 clients grew 2.9%QoQ and 8%QoQ respectively.”

“Growth in engineering services continue to be robust; had a large deal win in this quarter. The new MD & CEO Mr. Manu Parpia has changed the organization structure and has guided for a flattish revenue growth in Q1FY12 taking a conservative stance. Q1FY12 will also have a margin decline due to salary increase. However, the management has clearly indicated the agenda to expand margin going ahead with strong emphasis on engineering services. The growth momentum is likely to continue in FY12 but we have lowered our earnings estimates due to margin pressure in engineering business. At the CMP of Rs 65, the stock trades at 9.9x FY12E and 7.8x FY13E. We have 'HOLD' recommendation on the stock with a target price of Rs 75,” says PINC Research report.

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