Omnitech`s international operations under pressure: CRISIL

CRISIL Research has come out with its report on Omnitech Infosolutions. The research firm has maintained fair value of Rs 182 and valuation grade of 4/5 to the company. The subsidiaries are expected to break even in H1FY14, says CRISIL.

Omnitech's Q2FY13 earnings were below CRISIL Research's expectations. Consolidated revenues grew by 1.2% q-o-q (up 5.3% y-o-y) to Rs 1,295 mn supported by standalone revenues (mainly domestic), which increased by 5.3% q-o-q to Rs 1,100 mn due to healthy order execution. EBITDA margin increased by 89 bps q-o-q to 23.1% as the cost of goods sold as a proportion of revenues fell by 341 bps q-o-q to 51.6%. Other expenses increased by 30% q-o-q as the company booked a forex loss of Rs 10 mn and opened a new office in Kolkata. Interest cost was up by 20% q-o-q due to an increase in longterm debt; up at Rs 797 mn in H1FY13 from Rs 445 mn in FY12. Omnitech's standalone effective tax rate increased to 49% in Q2FY13 compared to 41% in the previous quarter as it booked deferred tax of Rs 40 mn. Consequently, adjusted PAT decreased by 29% q-o-q to Rs 41 mn. Debtor days have increased from 93 days in FY12 to 103 days in H1FY13 as the company faced payment delays in India and the Asia Pacific. We maintain our fundamental grade of 3/5, indicating that its fundamentals are good relative to other listed securities in India.

Domestic business strong...
Omnitech's domestic revenues outperformed overall revenues; they grew by 6.6% q-o-q to Rs 1,044 mn and accounted for 81% of total revenues. This growth was supported by healthy order inflow and strong order execution. Its standalone (mainly domestic) EBITDA margin improved by 179 bps q-o-q to 30.2%.

... however, overseas business is under pressure; subsidiaries' profitability affected
Omnitech's subsidiaries continued to be loss making in Q2FY13. Execution delay in new orders is weighing down on the Asia Pacific subsidiary's margins as Omnitech had already opened offices for these orders. Execution is expected to ramp up in Q4FY13, which would help improve the Asia Pacific subsidiary's profitability. Avensus reported a marginally positive EBITDA margin in Q2FY13 and continued to make losses at the PAT level. Omnitech is currently facing sluggishness in offshoring Avensus' business. We expect the subsidiaries to break even in H1FY14.

Earnings estimates for FY13 revised downwards
We have revised our earnings estimates for FY13 downwards. We have lowered our revenue estimate by 4.3% due to pressure in international operations. We have lowered our PAT estimate by 11% due to higher interest outgo as long-term debt has increased.

Fair value is maintained
We have used the discounted cash flow (DCF) method to value Omnitech and we maintain our fair value of Rs 182 per share. At the current market price of Rs 163, our valuation grade is 4/5.

To read the full report click on the attachment

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