Shares of Infotech Enterprises Ltd fell by 3% on Thursday, as the company’s results, which were announced after markets closed on Wednesday, were below expectations. The company reported a 2% sequential increase in revenues for the March quarter, but this is inclusive of revenues of Daxcon Engineering Inc., which the company acquired in January this year. Excluding the Daxcon business, organic revenues fell by 4% to Rs229.4 crore.
The drop in revenues was largely owing to a delay in ramp-up of a large European client in the utilities, telecom and government (UTG) segment.
Revenues of this segment fell by 6% in rupee terms last quarter. But project execution is expected to pick-up in the June quarter and the UTG group is expected to recover. The company has won some large deals recently and analysts expect growth in the current fiscal. The company increased its employee base by 6% last quarter, indicating a strong growth expectation in the coming quarters.
Graphic: Naveen Kumar Saini / Mint
The company is expected to grow at a considerably higher rate than industry body Nasscom’s expectation of a 13-15% growth for the information technology (IT) industry this year.
According to a recent report by Credit Suisse Group AG: “We build-in 22% year-on-year growth for Infotech Enterprises in FY11 (in dollar terms), higher than the rest of the mid-cap space and on a par with large-cap companies. A strong visibility through recent contract wins drives on confidence on near-term growth for the company.”
It adds that the company operates at relatively low employee utilization levels, which leaves room for margin improvement this year. Infotech has performed much better than its mid-cap peers in terms of revenue and earnings growth, and this has been rewarded by the markets. Most mid-cap IT stocks have underperformed large-cap peers in the rally since March 2009, but shares of Infotech have risen by 353%, much higher than the 195% increase in the CNX IT Index. The stock trades at a little over 14 times trailing earnings, or a 45% discount to Infosys’s valuations. If the company delivers on revenue and earnings growth expectations referred to above, there could be a further re-rating of the stock.