Infotech Enterprises an underperformer: Karvy Stock Broking

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Infotech Enterprises an underperformer: Karvy Stock Broking

Karvy Stock Broking has recommended an underperformer rating on Infotech Enterprises with a target of Rs 170 in its October 15, 2010 research report.

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Karvy Stock Broking has recommended an underperformer rating on Infotech Enterprises with a target of Rs 170 in its October 15, 2010 research report.

"Infotech Enterprises has 2QFY11 top-line saw a strong 16.8% qoq growth to Rs 2.95 billion (USD 63.5 million, 14.6% qoq). This was due to strong volume growth (engineering, manufacturing and industrial products - EMI volumes grew 13% qoq, utilities, telecom and government - UTG volumes grew 15.8% qoq). EMI and UTG revenues grew 15.1% and 20.8% qoq in rupee terms, respectively (13.1% and 18.2% qoq in dollar terms, respectively). The strong growth was also due to the acquisition of Wellsco, consolidated wef. August 9, 2010. Wellsco contributed Rs 84.9 million to revenues during the quarter."

"Infotech recorded a 50 bps qoq decline in EBITDA margins in 2QFY11 owing to salary adjustments and hikes for staff that were not awarded hikes in 1QFY11 as well as lower margins of Wellsco. Salary adjustments of Rs 49 mn impacted margins by 160 bps qoq. Infotech's 2QFY11 margins are its lowest since 1QFY05. Owing to the fall in margins, lower other income (down 17.8% qoq) and lower associate profits (down 56% qoq), net profits were flat in spite of the strong growth recorded in revenues."

"The disappointing bottom-line performance in 2QFY11 plus the risk of rupee appreciation leads us to maintain our 'Under performer' rating on the stock with a slightly upgraded target price of Rs 170 (Rs 165 earlier) owing to the upgrade in FY12 EPS estimates," says Karvy Stock Broking research report.

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To read the full report click on the attachment