Eyeing stable growth in Q4, says Infotech's CMD

Infotech Enterprises reported a consolidated sales turnover of Rs 475.12 crore and a net profit of Rs 60.12 crore for the quarter ended Dec '12. The company’s other income for the quarter stood at Rs 17.04 crore.

BVR Mohan Reddy, CMD  of Infotech Enterprises told CNBC-TV18 that the company had to deal with a few aberrations with respect to their clients in the third quarter of FY13. The company suffered a revenue loss of around a million dollars due to increased furlough days experienced by one of its heavy equipment customers and due to the shutdown of a particular division of a hi-tech customer, he informed. However, Reddy is confident about making up for the losses. “Certainly, we have to make up for the shortfall that we have with this HiTech customer. Our current read is that we will have a very stable Q4 too,” he added. Overall, Reddy feels Infotech will be able to maintain its Q4 margins around the 18.5 percent mark that it achieved during Q3. “Our Q4 will be as stable as it was in Q3 and it will be around the 18.5 percent number that we have already seen,” he explained. Here is the edited transcript of the interview on CNBC-TV18. Q: We do understand that there was some amount of aberration with regards to clients this quarter. Can you just detail what exactly the aberrations were and whether it was a one-off or would you iron that out in the coming quarters and secondly, what would your guidance be for Q4? A: Yes, what you said is right. We had some aberrations with our customers. There are two or three different things that I would like to talk about. Firstly, one of our heavy equipment customers had a larger number of furlough days. Furloughs are not uncommon in the October to December quarter, but as opposed to five furlough days that was announced, it became 12 and that gave us a dip of about a million dollars in our revenue. In addition to that one of our HiTech customers have shut down one of their divisions in terms of outsourcing with a very short notice. It is not that we have lost it to somebody else, but they primarily shut it down and that was yet another hit of about a million dollars of shortfall that we had. We also continue to see some challenges in the European market. To sum it up, there are external factors like the European markets and the internal factors, which had to do with our customers, the heavy equipment and the HiTech customer I talked about. Now as far as the heavy equipment customer is concerned, the furloughs would not happen in this quarter. They are now furloughs that have been announced and that is a very temporary aberration. We are certainly seeing Europe coming back and as far as the HiTech customer is concerned, we have to make up for the deficiency that we saw in our revenue for the last quarter. Inspite of all this, I would like to emphasise that we still grew in terms of volume by 0.5 percent. We did USD 88 million or so, which is 0.5 percent better than the previous quarter. Looking at a year-on-year basis, we did 7.3 percent growth on dollar terms. We did about 14 percent in rupee terms. If you look at the other parameters, we had a very stable margin at 18.5 percent. Our profit after tax (PAT) of course got a boost because of the other income. Coming to the question of Q4, certainly we have to make up for the shortfall that we have with this HiTech customer. Our current read is that we will have a very stable Q4 too. But, there is some upside which we probably will get to know in the coming weeks. If there is an upside, it will be a much better quarter than last quarter. Otherwise, we still believe it is as stable as Q3, if not better than Q3. _PAGEBREAK_ Q: How do you think you will do on margins in the current quarter, that is in Q4 and maybe in the quarter thereafter as well? A: Our Q4 will be as stable as it was in Q3 and it will be around the 18.5 percent number that we have already seen. We will continue with that, but Q1 is a quarter where we will have salary impact coming in because we give salary increases to our associates in Q1 of every financial year. We don’t know what is the quantum that is going to come in, but that to a certain extent also gets offset with the price increases that we get. While not all the customers are ready to give us price increases, there are some price hikes which are being factored in. Therefore, we believe that these price increases could potentially offset the wage increases to a certain extent, if not to the fullest extent. So, Q1 may have a little bit of a dip compared to Q4, but in Q4 we are very confident that it will be stable at the same number of 18.5 to 18.7 percent. Q: What will you do by way of volume, despite this ramp-down of your two big clients in the transportation & hi-tech (HTH) segment? You are able to keep your overall volume growing at about 0.5 percent. What can you guide by way of volume growth for Q4? A: I said the volume degrowth happened in case of two of our customers, one was in heavy equipment, the other was in high technology. In the heavy equipment segment, we do not have a challenge because it was primarily because of furlough that happened in the quarter gone by and it can be made up. Whereas in case of high technology, the division closed down and we have to make it up for that. We are certainly seeing a positive traction with our aerospace business. We have added nine more customers during the last quarter. There are ramp-ups being planned and as a result of those ramp-ups we will certainly see stable growth in the current quarter.