Infotech Enterprises reported a 1% q-o-q decline in its Q1FY2010 topline in Rupee terms. However, in US Dollar terms, revenues grew 1.3% (q-o-q) to $47.8 million ($47.2mn in 4QFY2009).
Reported Dollar numbers were boosted owing to the appreciation of the Euro and the British Pound against the Dollar. Revenues in Rupee terms fell owing to the lower average realized Rupee rate during the quarter (down 2.3% q-o-q to Rs48.66 per US Dollar as against Rs49.78 in 4QFY2009).
On a segment-wise basis, the key Engineering, Manufacturing & Industrial Products (EMI) Business de-grew by 4.2% q-o-q, while the Utilities, Telecom and Government (UTG) Business grew by a decent 5% q-o-q.
The EMI Business was adversely impacted by a 4.2% q-o-q volume de-growth, while UTG Business volumes grew 1.2% q-o-q, with the balance growth being accounted for by currency fluctuations. Overall volumes de-grew 2.4% q-o-q. On the other hand, pricing was stable.
On a y-o-y basis, the company recorded a 15.9% growth in its topline, which was mainly on account of the Rupee depreciation witnessed over the year, with the realised Rupee rate being higher by a significant 16.7% y-o-y (Rs48.66 per US Dollar v/s Rs41.71 in 1QFY2009).
In US Dollar terms however, Revenues saw a 0.6% y-o-y decline. In terms of verticals, the EMI Business grew 15.8% y-o-y, while the UTG Business grew 16.4% y-o-y.
Outlook and valuation
We expect Infotech to record a 13% CAGR in its topline over the period FY2009-11E, while bottomline is estimated to clock a strong 27.6% CAGR over the mentioned period.
We estimate PAT to register a robust growth of 39.4% in FY2010, due to a significantly lower quantum of forex losses.
With the outperformance on the Margins front in 1QFY2010, we have raised our Margin estimates for Infotech and now expect these to touch 21% in FY2010 and 20.5% in FY2011 (19.5% and 19.3% respectively, earlier).
Management has maintained its stance of not giving any guidance for FY2010 on account of the lack of clear visibility for the fiscal.
However, it has stated that it expects 2QFY2010 to be a largely flattish quarter and that it expects a recovery in 2HFY2010.
At the CMP, the stock is trading at 7.5x FY2011E EPS. We believe Infotech is one of the better mid-sized software companies and has shown its ability to withstand a challenging business environment by managing volumes within a low single-digit fall.
We upgrade the stock from Neutral to ACCUMULATE with a target price of Rs215, implying a P/E of 8x FY2011E EPS.