Infinite Computers - LOOKING UP - SPA Securities

Infinite came out with its 4QFY12 results, in-line with our estimates. The company has shown positive volume growth of 0.5% to $53.1mn after two quarters of sequential decline. The FY12 revenue of $220.7mn and EPS of INR 27.7 exceeded company's guidance. The company has guided towards a 30% USD revenue growth in FY13E. We expect the company to exceed their EPS guidance of INR 34.3 in FY13E growing at 25.2%. With higher than industry average growth rates we expect a rerating of the stock from the current 3x LTM PE multiple to 5x with a target price of INR 190.

4QFY12 and FY12 Revenues - return to growth

The company witnessed a sequential revenue growth of 0.5% in 4QFY12 to $53.1mn (3.1% decline YoY). The onsite pricing declined by 1.5% with stable offshore pricing. FY12 revenues of $220.7mn (SPAe: $220mn) grew 14% on the back of growth from BFSI and healthcare verticals (Others, up by 229% YoY).

Margins decline

Infinite witnessed a 468bps decline in EBITDA Margins for 4QFY12 (15.3%) over 3QFY12 due to (i) higher one-time contract manpower cost with one of the largest customer's transition project coming to end and (ii) INR appreciation. In FY12 the EBITDA Margins expanded by 59bps to 17.3% but higher tax outgo caused a lower PAT growth of 12.6% to INR 1,207mn

Growth Avenues

The company has hinted towards a USD revenue growth rate, higher than industry growth rate, at 30% for FY13E. The EBITDA Margins are expected to be lower at 16% from the FY12 margins of 17.3% as the company expects to invest the surplus into extending its next generation 3G messaging platforms products. We expect the company to meet its revenue guidance on the back of higher growth from recent deal wins and product launches.

Outlook and Valuation

Infinite has exceeded its FY12 revenues and margin guidance on the back of higher growth from BFSI and Healthcare verticals and INR depreciation. We expect the growth momentum to continue on the back of marquee deals (Messaging Platform) and products (to be launched in 2QFY13). We have factored in a USD revenue growth of 21%/25% for FY13E/FY14E. We expect the margins to come off a bit due to (i) higher product investments (ii) Visa Costs hence contract manpower increasing and (iii) Wage Inflation though partially offset by INR depreciation. We have factored EBITDA Margins of 16.9%/17.7% for FY13E and FY14E. Thus on the back of higher than industry growth, stable margins and exceeding company's guidance, we expect the stock to be re-rated upwards. We continue to recommend BUY for the stock with a 2 year target price of INR 190.0 based on 5x FY14E earnings of INR 38.

Source : Equity Bulls

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