Infotech Enterprises - Q3FY14 Results - Kotak

Infotech's results were better than our estimates. The 5.7% growth in CC terms was higher than our expectations. The management had guided for a better 2HFY14 as scale ups start contributing. We note that Infotech had lagged most peers in 1HFY14 growth rates. We would watch out for further scale ups in these accounts, going ahead. EBIDTA margins were marginally lower due to S&M investments and one-time investments.

The management has indicated a general pick-up in sentiments and a good pipeline. We have been uncomfortable with the projects-based nature of revenues and the attached quarterly volatility in revenue growth. Our earnings estimates for FY14 stand at Rs.24.6 (Rs.24.6) per share and for FY15 at Rs.30 (Rs.27.1) per share. Our PT stands revised to Rs.339 (v/s Rs.264). At our TP, FY15E earnings will be discounted by 11.25x. The stock has already moved up sharply in past few trading sessions and is quoting at 12x FY15 estimates.

We recommend REDUCE (ACCUMULATE, earlier). We believe IEL has to bring in more consistency in revenue growth for sustained valuation gains. IEL had reported a 6% revenue growth in FY13 and may report about 5% growth in USD revenues in FY14. The company expects to conclude M&A negotiations with one target in the near term. Expected cash / cash equivalents of Rs.80 per share by FY15 end, may provide cushion to the stock.

Source : Equity Bulls

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