Sell Infotech; target of Rs 175: Anand Rathi Securities

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Sell Infotech; target of Rs 175: Anand Rathi Securities

Anand Rathi Securities is bearish on Infotech Enterprises and has recommended sell rating on the stock with a target of Rs 175 in its October 14, 2010 research report.

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Anand Rathi Securities is bearish on Infotech Enterprises and has recommended sell rating on the stock with a target of Rs 175 in its October 14, 2010 research report.

"Infotech Enterprises EBITDA margin fell 50bp qoq on account of wage hikes (following a 557-bp qoq fall in 1Q) even with healthy 15.8% volumes for the UTG (6.4% organic) and 13.2% for the EMI verticals. Management indicated that recruiting a high-cost sales team would hold margins in check. We maintain our target price and rating on the stock. US dollar revenue grew 14.6% qoq (11.3% organically). The company added seven clients in the UTG and five in the EMI vertical. Geographically, North America grew 23.2%, while Europe grew 14.3%. Infotech holds Rs 3.6 billion (Rs 33 per share) in cash and cash equivalents."

"We lower our FY11e and FY12e EPS 3.8% and 3.5% to Rs 12.5 and Rs 15.4 respectively, taking into account the lower margin. We expect about 16% volume growth, flat pricing, and a 40-bp margin expansion over FY12, a tax rate of 23% (constant compared with FY12)."

"Sell Infotech Enterprises with a target of Rs 175 comprises Rs 155 (target 12-month forward, Sep '11 PE of 12x) and Rs 20 (valuing the cash above the average peer cash holding). Our target multiple is at a 40% discount to the average of large-cap IT stocks (FY11e PE 19.5x)," says Anand Rathi Securities research report.

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To read the full report click on the attachment