3QFY2012 Result Update | IT

January 18, 2012

Infotech Enterprises
Performance Highlights
Y/E March (` cr) Net sales EBITDA EBITDA margin (%) Net profit 3QFY12 416.5 85.7 20.6 33.8 2QFY12 372.6 58.6 15.7 30.7 % chg (qoq) 11.8 46.2 484bp 9.9 3QFY11 313.8 47.5 15.1 36.9 % chg (yoy) 32.7 80.3 543bp (8.5)

ACCUMULATE
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code IT 1,422 0.4 175/100 21,839 5 16,451 4,956 INFE.BO INFTC@IN

`127 `134
-

Source: Company, Angel Research

For 3QFY2012, Infotech Enterprises (Infotech) reported a modest set of results, with volume growth of 2.0% and 2.3% qoq in the network and content engineering (NCE) and engineering manufacturing and industrial products (ENGG) verticals, respectively. To control staff costs and rationalize the employee pyramid, the company plans to hire 1,200 freshers in FY2012. We expect Infotech to post a 17.6% CAGR in USD revenue over FY201113E. We recommend Accumulate on the stock. Quarterly highlights: For 3QFY2012, Infotech reported revenue of US$81.7mn, up 0.4% qoq, on the back of 2.3% qoq volume growth. The company witnessed a 1.0% qoq increase in price in 3QFY2012. In INR terms, revenue came in at `416cr, up 11.8% qoq. The companys EBITDA and EBIT margins increased by 484bp and 473bp to 20.6% and 17.1%, respectively, largely on the back of INR depreciation against USD and an increase in offshoring of business as share of offshore venues grew from 45.9% in 2QFY2012 to 48.0% in 3QFY2012. PAT came in at `34cr, up 9.9% qoq, during 3QFY2012. Outlook and valuation: Management had guided for 22-25% yoy growth in INR revenue in FY2012, which has already been achieved in 9MFY2012 due to sharp INR depreciation. Also, the company has got a price increase from some of its selective clients, which instills confidence in the companys performance going ahead. So, over FY2011-13E, we expect Infotech to post a USD and INR revenue CAGR of 17.6% and 23.2%, respectively. For FY2012, management expects operating margins to exit at ~17%, which can be easily achieved now, given the sharp INR depreciation. We expect EBITDA margin to decline to 16.0% in FY2013 due to wage inflation and fresher hiring, which will lead to lower utilization level. We value the company at 8.5x FY2013E EPS of `15.8, which gives us a target price of `134, and recommend Accumulate on the stock. Key financials (Consolidated)
Y/E March (` cr) Net sales % chg Net profit % chg EBITDA margin (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 23.0 7.1 22.9 47.0

Abs. (%) Sensex Infotech

3m (1.8) 8.9

1yr (13.8) (24.9)

3yr 76.4 179.2

FY2009 890 32.0 92 6.5 20.1 8.6 14.7 1.8 12.0 16.7 1.2 5.9

FY2010 953 7.1 171 85.0 21.9 15.4 8.2 1.6 18.9 18.1 1.0 4.7

FY2011 1,188 24.6 140 (18.3) 15.2 12.6 10.1 1.3 13.4 12.6 0.8 5.4

FY2012E 1,562 31.5 139 (0.3) 17.4 12.5 10.1 1.2 11.8 17.6 0.6 3.3

FY2013E 1,802 15.4 175 25.7 16.0 15.8 8.1 1.0 13.0 16.1 0.4 2.6

Ankita Somani
+91 22 3935 7800 Ext: 6819 ankita.somani@angelbroking.com

Please refer to important disclosures at the end of this report

Infotech Enterprises | 3QFY2012 Result Update

Exhibit 1: 3QFY2012 Financial performance

Y/E March (` cr) Total revenue Salary cost Gross profit Gross margin (%) Travel expenditure Purchase of products Other operating costs EBITDA EBITDA margin (%) Dep. and amortization EBIT EBIT margin (%) Financial expenses Other income Profit before tax Tax PAT Share of profits of associates Minority interest Final PAT PAT margin (%) EPS(`)
Source: Company, Angel Research

3QFY12 416.5 246.4 170.2 40.9 23.1 12.3 49.1 85.7 20.6 14.2 71.4 17.1 0.3 (23.1) 48.0 17.2 30.9 3.0 0.1 33.8 8.6 3.0

2QFY12 372.6 230.5 142.1 38.1 22.2 11.0 50.4 58.6 15.7 12.3 46.3 12.4 0.5 (1.4) 44.4 15.4 29.1 1.7 0.1 30.7 8.3 2.8

% chg (qoq) 11.8 6.9 19.8 272bp 4.5 12.0 (2.6) 46.2 484bp 15.7 54.3 473bp

3QFY11 313.8 193.4 120.4 38.4 19.5 13.1 40.4 47.5 15.1 12.2 35.3 11.2 9.8

% chg (yoy) 32.7 27.4 41.3 247bp 19.0 (6.4) 21.6 80.3 543bp 16.4 102.5 591bp

9MFY12 1,135.8 699.0 436.8 38.5 70.0 34.0 145.1 187.7 16.5 38.1 149.6 13.2 1.0 (18.1)

9MFY11 862.2 534.6 327.6 38.0 54.6 32.1 107.2 133.7 15.5 36.3 97.3 11.3 0.8 24.5 121.0 23.0 98.0 4.8 0.1 102.8 11.6 9.2

% chg (yoy) 31.7 30.8 33.3 46bp 28.2 6.0 35.3 40.4 103bp 4.8 53.8 189bp

8.2 11.7 6.3 71.7 9.9 31bp 10.4

45.1 7.7 37.5 (0.5) 0.1 36.9 11.4 3.3

6.5 124.2 (17.5) (745.7) (8.5) (282)bp (7.9)

130.5 45.2 85.4 6.2 0.1 91.4 8.2 8.2

7.8 96.3 (12.9) 27.3 180.0 (11.1) (342)bp (11.1)

Exhibit 2: 3QFY2012 Actual vs. Angel estimates

(` cr) Net revenue EBITDA margin (%) PAT
Source: Company, Angel Research

Actual 417 20.6 34

Estimate 419 17.0 35

% Var (0.7) 356bp (4.7)

INR depreciation brings in cheer

For 3QFY2012, Infotech reported revenue of US$81.7mn, up merely 0.4% qoq, on the back of 2.3% qoq volume growth. The NCE vertical witnessed volume growth of 2.0% qoq and the ENGG vertical reported 2.3% qoq volume growth. In INR terms, revenue came in at `416cr, up 11.8% qoq, on account of 1) 0.4% qoq volume growth, 2) 1.0% qoq positive impact because of increased price realization and 3) remaining gain on the back of INR depreciation against USD in 3QFY2012.

January 18, 201

Infotech Enterprises | 3QFY2012 Result Update

Exhibit 3: Volume growth trend (Segment wise, qoq)

16 12 8 5.7 6.3 6.4 2.3 4.4 (3.7) (4) 3QFY11 4QFY11 NCE
Source: Company, Angel Research

14.1

(%)

5.2

4 0

4.1 2.0

1QFY12

2QFY12 ENGG

3QFY12

Exhibit 4: Revenue growth trend

85 80 75 10.1 77.5 69.9 71.9 5.0 2.9 4 2 0.4 3QFY11 4QFY11 1QFY12 2QFY12 qoq growth (%) 3QFY12 0 7.8 81.4 81.7 12 10 8 6

(US $mn)

65 60 55 50

Revenue (USD terms)

Source: Company, Angel Research

NCE: During the quarter, the NCE verticals revenue increased by 6.2% qoq to US$26.6mn. In INR terms, revenue came in at `127.3, up 10.8% qoq, on the back of 2.0% qoq volume growth and 8.8% qoq benefit from INR depreciation against USD. The company continues to see good traction from the U.S. in this vertical, with increased volumes from one of its largest telecom and utility clients. The deal pipeline in this vertical remains robust from APAC; however, deals from EMEA are now showing initial signs of picking up. Infotech added six new clients in the NCE vertical during 3QFY2012.

January 18, 201

(%)

70

Infotech Enterprises | 3QFY2012 Result Update

Exhibit 5: NCE vertical Revenue growth trend

28 26 24 22 20 18 16 14 12 10 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 Revenue (USD terms)
Source: Company, Angel Research

20 17.3 23.8 22.2 7.1 6.2 5.4 (2.5) 25.1 26.6 15 10 5 0 (5) qoq growth (%)

(US $mn)

22.8

ENGG: The ENGG verticals revenue declined by 2.1% qoq to US$55.1mn due to ramp down from one of its clients. In INR terms, revenue came in at `289.3cr, up 12.2% qoq, on the back of 2.3% qoq volume growth and 9.9% qoq benefit from INR depreciation against USD. Infotech added five new clients in this vertical during the quarter.

Exhibit 6: ENGG vertical Revenue growth trend

58 56 54 52 50 48 46 44 42 40 3QFY11 4QFY11 1QFY12 2QFY12 qoq growth (%) Revenue (USD terms)
Source: Company, Angel Research

10 7.1 5.5 7.9 53.7 4.9 49.8 47.2 56.3 8 55.1 6

(US $mn)

2 0 (2.1) 3QFY12 (2) (4)

Hiring momentum continues

During 3QFY2012, Infotech continued its hiring trend in its NCE vertical, adding 179 employees on the base of 3,952 people to map the demand witnessed in this vertical. The ENGG vertical, which witnessed employee rationalization in 2QFY2012, again saw net reduction in its employee base in 3QFY2012, taking its total employee base to 4,415. The company hired 876 gross employees in 3QFY2012, and management indicated that gross addition for 4QFY2012 will be ~850 people. The companys attrition rate (annualized basis) increased to 19.0% in 3QFY2012 from 18.1% in 2QFY2012.

January 18, 201

(%)

(%)

Infotech Enterprises | 3QFY2012 Result Update

Exhibit 7: Trend in hiring

3QFY11 Net additions NCE ENGG Support Total employees NCE ENGG Support
Source: Company, Angel Research

4QFY11 (33) 306 54 3,714 4,365 632

1QFY12 (21) 160 25 3,693 4,525 657

2QFY12 259 (15) (6) 3,952 4,510 651

3QFY12 179 (95) 4,131 4,415 651

(176) 353 84 3,747 4,059 578

Utilization level for the NCE and ENGG verticals decreased to 88% and 72% in 3QFY2012 from 90% and 73% in 2QFY2012, respectively, due to addition of freshers into the system.

Exhibit 8: Trend in utilization (Segment wise)

95 90 85 80 81 83 86 90 88

(%)

75 70 65 60 3QFY11 4QFY11 NCE 1QFY12 2QFY12 ENGG 3QFY12 75 75 74 73 72

Source: Company, Angel Research

Margins enhance
For 3QFY2012, Infotech recorded a 484bp and 473bp qoq expansion in its EBITDA and EBIT margins to 20.6% and 17.1%, respectively, largely on the back of INR depreciation against USD and an increase in offshoring of business, as share of offshore revenue grew from 45.9% in 2QFY2012 to 48.0% in 3QFY2012. Going ahead, the company is looking to improve its utilization level in the ENGG vertical, right-size its employee pyramid by adding more freshers into the system and improve onsite-offshore mix, which will in turn improve operating margins and aid profitability.

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Infotech Enterprises | 3QFY2012 Result Update

Exhibit 9: Trend in margins

25 20.6 20 15.7 12.5 12.4 10.6 9.2 1QFY12 2QFY12 3QFY12 17.1

(%)

15.1 15

14.3

10

11.2

5 3QFY11 4QFY11

EBITDA margin
Source: Company, Angel Research

EBIT margin

Outlook and valuation

Infotech has been witnessing a 5.2% CQGR in its revenue over 2QFY20113QFY2012 because of inorganic growth due to the acquisition of Daxcon and Wellsco. Management had guided for 22-25% yoy growth in INR revenue in FY2012, which has already been achieved in 9MFY2012 due to sharp INR depreciation. Also, the company has got price increase from some of its selective clients, which instills confidence in the companys performance going ahead. So, over FY2011-13E, we expect the company to post a USD and INR revenue CAGR of 17.6% and 23.2%, respectively. The companys operating margin improved in this quarter as well, after a declining trajectory seen since 3QFY2010-2QFY2012, despite managements repetitive indications of focusing on improving margins. This year, management expects operating margins to exit at ~17%, which can be easily achieved now, given the sharp INR depreciation. We expect EBITDA margin to decline to 16.0% in FY2013 due to wage inflation and fresher hiring, which will lead to lower utilization level. We value the company at 8.5x FY2013E EPS of `15.8, which gives us a target price of `134, and recommend Accumulate on the stock.

Exhibit 10: Key assumptions

FY2012 Revenue growth (USD) Revenue growth (INR) EBITDA margin (%) EBIT margin (%) Tax rate (%) PAT growth (%)
Source: Company, Angel Research

FY2013 11.2 15.4 16.0 12.0 33.0 25.7

24.3 31.5 17.4 13.3 33.0 (0.3)

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Infotech Enterprises | 3QFY2012 Result Update

Exhibit 11: Change in estimates

FY2012E Parameter (` cr) Net revenue EBITDA PBT Tax PAT Earlier estimates 1,560 234 190 59 139 Revised estimates 1,562 272 196 65 139 Variation 0.1 16.4 3.3 9.9 0.3 Earlier 1,784 282 236 73 173 FY2013E Revised 1,802 288 246 81 175 Variation (%) 1.0 2.3 4.1 10.9 1.1 (%) estimates estimates

Source: Company, Angel Research

Exhibit 12: One-year forward PE (x) chart

300 250 200

(`)

150 100 50 0

Apr-07

Apr-08

Apr-09

Apr-10

Oct-07

Oct-08

Oct-09

Oct-10

Apr-11

Price
Source: Company, Angel Research

18x

14x

10x

6x

2x

Exhibit 13: Recommendation summary

Company HCL Tech Hexaware Infosys Infotech Entp. KPIT Cummins Mahindra Satyam MindTree Mphasis NIIT^ Persistent TCS Tech Mahindra Wipro Reco. Buy Buy Buy Accumulate Accumulate Buy Accumulate Accumulate Buy Neutral Buy Accumulate Neutral CMP (`) 418 81 2,611 127 145 71 449 350 43 319 1,075 592 404 Tgt. price (`) 520 96 3,047 134 163 82 502 368 55 1,262 666 Upside (%) 24.5 18.9 16.7 5.5 12.7 15.0 11.7 5.3 29.4 17.4 12.4 Target P/E (x) 13.0 11.0 18.0 8.5 10.0 11.0 10.0 11.5 6.9 9.0 19.5 9.0 15.3 FY2013 EBITDA (%) 17.5 18.7 32.0 16.0 15.4 14.8 14.7 16.6 16.3 22.4 29.9 16.8 19.7 FY2013E P/E (x) 10.4 9.3 15.4 8.1 8.8 9.6 8.9 9.5 5.3 9.3 16.6 7.1 14.9 FY2011-13E EPS CAGR (%) 22.1 74.1 18.9 11.9 19.9 33.0 42.1 (3.1) 19.3 (1.1) 20.6 29.9 11.6 FY2013E RoCE (%) 20.9 21.4 25.8 16.1 19.5 11.7 20.3 14.0 11.0 20.0 32.1 14.6 14.6 FY2013E RoE (%) 23.1 19.8 23.8 13.0 16.9 13.8 17.4 14.2 15.6 14.0 33.3 20.0 20.0

Source: Company, Angel Research; Note: ^Valued on SOTP basis

January 18, 201

Oct-11

Infotech Enterprises | 3QFY2012 Result Update

Profit and Loss statement

Y/E March (` cr) Net sales Cost of revenues Gross profit % of net sales Selling and mktg. expense % of net sales General and admin expense % of net sales EBITDA % of net sales Dep.and amortization % of net sales EBIT % of net sales Other income Interest expenses Profit before tax Provision for tax % of PBT PAT Minority interest Adj. PAT Fully diluted EPS (`) FY2009 890 490 400 45.0 96 10.8 126 14.1 179 20.1 47 5.2 132 14.8 (30) 4 98 14 14.2 84 (8) 92 8.6 FY2010 953 543 410 43.1 87 9.2 115 12.0 208 21.9 44 4.6 165 17.3 46 3 208 51 24.3 158 (13) 171 15.4 FY2011 1,188 735 453 38.1 119 10.0 154 12.9 180 15.2 49 4.1 132 11.1 30 2 160 27 16.9 133 (7) 140 12.6 FY2012E 1,562 950 612 39.2 140 8.9 200 12.8 272 17.4 64 4.1 208 13.3 (13) 196 65 33.0 131 (8) 139 12.5 FY2013E 1,802 1,108 694 38.5 171 9.5 234 13.0 288 16.0 72 4.0 216 12.0 30 246 81 33.0 165 (10) 175 15.8

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Infotech Enterprises | 3QFY2012 Result Update

Balance sheet
Y/E March (` cr) Equity capital Share premium account Reserves and surplus Shareholders funds Minority interest Borrowings Total capital employed Gross block Accumulated depreciation Net block CWIP Deferred tax asset Investments Sundry debtors Cash and cash equivalents Loans and advances Prepaid and other current assets Total current assets Sundry creditors and others Other current liabilities Provisions Total current liab. and provisions Net current assets Total capital deployed 656 82 103 39 224 433 790 FY2009 28 360 383 770 20 790 461 219 243 58 17 40 263 333 60 FY2010 28 363 516 906 4 911 494 239 255 61 3 202 207 234 134 33 606 66 50 101 216 390 911 FY2011 56 334 655 1,046 0.6 1,046 560 288 273 65 1.5 91 268 350 185 34 929 79 25 118 222 707 1,046 FY2012E 56 345 782 1,182 0.6 1,182 620 352 268 65 1.7 98 301 426 220 22 1,066 92 77 50 219 847 1,182 FY2013E 56 347 944 1,346 0.6 1,347 680 424 256 65 2.0 105 369 549 236 22 1,280 113 94 50 257 1,024 1,347

January 18, 201

Infotech Enterprises | 3QFY2012 Result Update

Cash flow statement

Y/E March (` cr) Pre-tax profit from oper. Depreciation Exp. (deferred)/written off Pre tax cash from oper. Other inc./prior period ad Net cash from operations Tax Cash profits (Inc)/dec in Sundry debtors Loans and advances Other current assets Sundry creditors Others Net trade working capital Cash flow from oper. actv. (Inc)/dec in fixed assets (Inc)/dec in investments (Inc)/dec in dfrd. tax asst. Cash flow from invest. actv. Inc/(dec) in debt Inc/(dec) in equity/premium Dividends Cash flow from fin. actv. Cash generated/(utilised) Cash at start of the year Cash at end of the year (46) (16) 32 70 40 179 (118) 189 (18) 53 (23) 16 (10) (17) 214 119 333 56 (73) (33) (16) 9 (57) 157 (58) (162) 14 (207) (15) (22) (13) (50) (100) 333 234 (61) (51) (2) 13 (8) (109) 79 (71) 111 1 42 (4) 16 (16) (4) 117 234 350 (34) (35) 13 14 (16) (58) 145 (60) (7) (0) (67) 10 (13) (3) 75 350 426 (67) (17) 20 17 (46) 201 (60) (7) (0) (67) 3 (13) (10) 123 426 549 FY2009 128 47 (8) 182 (30) 153 14 139 FY2010 162 44 (13) 218 46 265 51 214 FY2011 130 49 (7) 186 30 215 27 188 FY2012E 208 64 (8) 280 (13) 268 65 203 FY2013E 216 72 (10) 298 30 328 81 247

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Infotech Enterprises | 3QFY2012 Result Update

Key ratios
Y/E March Valuation ratio (x) P/E P/CEPS P/BVPS Dividend yield (%) EV/Sales EV/EBITDA EV/Total assets Per share data (`) EPS (Basic) EPS (Fully diluted) Cash EPS Dividend Book value DuPont analysis Tax retention ratio (PAT/PBT) Cost of debt (PBT/EBIT) EBIT margin (EBIT/Sales) Asset turnover ratio (Sales/Assets) Leverage ratio (Assets/Equity) Operating ROE Return ratios (%) RoCE (pre-tax) Angel RoIC RoE Turnover ratios (x) Asset turnover (gross block) Receivables days Payable days 1.9 98 50 1.9 90 50 2.1 73 36 2.5 67 33 2.6 68 34 16.7 36.8 12.0 18.1 39.8 18.9 12.6 24.4 13.4 17.6 35.1 11.8 16.1 34.4 13.0 0.9 0.7 0.1 1.1 1.0 11.0 0.8 1.3 0.2 1.0 1.0 17.4 0.8 1.2 0.1 1.1 1.0 12.7 0.7 0.9 0.1 1.3 1.0 11.1 0.7 1.1 0.1 1.3 1.0 12.3 8.6 8.6 13.0 0.8 72.0 15.4 15.4 19.3 1.0 81.6 12.6 12.6 17.0 1.3 94.2 12.5 12.5 18.3 1.0 106.5 15.8 15.8 22.3 1.0 121.3 14.7 9.8 1.8 0.6 1.2 5.9 1.3 8.2 6.6 1.6 0.8 1.0 4.7 1.1 10.1 7.5 1.3 1.0 0.8 5.4 0.9 10.1 6.9 1.2 0.8 0.6 3.3 0.8 8.1 5.7 1.0 0.8 0.4 2.6 0.6 FY2009 FY2010 FY2011 FY2012E FY2013E

January 18, 201

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Infotech Enterprises | 3QFY2012 Result Update

Research Team Tel: 022 - 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Infotech Enterprises No No No No

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

January 18, 201

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