Result Flash on Infotech Enterprises for 4QFY2011

Infotech Enterprises reported its 4QFY2011 numbers which were below street as well as our expectations. The dollar revenues came in US$71.9mn (v/s our expectation of US$74.2mn), up merely 2.9% qoq due to volume de growth of 3.7% qoq in N&CE vertical; however, ENGG vertical posted robust 5.7% qoq volume growth. Overall, the volume growth was 2.7% qoq. In rupee terms, revenue came in `325.8cr (v/s our expectation of `161cr), up 3.8% qoq aided by INR depreciation against USD by 1.0% qoq in 4QFY2011. The EBITDA margin declined by 80bp qoq to 14.4% due to increase in salary cost (because of manpower addition, incentives and commissions) and higher travel costs. Despite poor operational performance, PAT came in at `36.9cr, up 0.1% qoq as it is aided by tax write of `5.0cr in 4QFY2011.

 4QFY2011: Result highlights

(Rs cr)	4QFY11	4QFY11E	% Var	3QFY11	% chg (qoq)	4QFY10	% chg (yoy)
Net revenue	326	336	(3.1)	314	3.8	244	33.5
EBIT	35	45	(23.7)	35	(2.0)	43	(20.2)
EBIT margin (%)	10.6	13.5	(286)bp	11.2	(60)bp	17.7	(714bp
PAT	37	34	9.0	37	0.1	51	(28.0)

Key highlights:

·         The company added 306 net employees in ENGG vertical while there was net reduction of 33 employees in N&CE vertical during 4QFY2011. Attrition rate (annualised basis) for declined to 14.96% from 19.04% in 3QFY2011. Infotech is planning to hire `1,000 freshers in FY2012 to control staff costs.

·         Utilisation level for N&CE vertical increased to 83% from 81% in 3QFY2011. Utilisation for ENGG vertical remained stable at 75%. The company is looking to improve utilisation level going ahead which will in turn improve operating margins and will aid profitability.

·         Client additions stood modest at 19; 12 in N&CE and 7 in ENGG.

·         Aerospace engineering services revenues crossed US$100mn in a single year in FY2011 which made Infotech the largest engineering services company in Aerospace business in India.

·         The company is witnessing good traction in Aerospace, Heavy equipment, Rail, Oil and Gas and Hitech industry segments.

·         Cash balance as on 4QFY2011 stands at `380.

·         Mr. Ajay Aggarwal has joined the company as its new CFO.

Overall the results were disappointing on the operational front and the management missed its guidance of expanding margins in this quarter. The stock is currently under review and we may revisit our target price of `194 post the concall. We will be releasing a detailed result update on it shortly.