Nov 21, 2012
Infinite reported better than expected Q2FY13 revenue growth of 7% to $63mn (SPAe: $61mn). The company saw greater traction in IMS business and added 6 new clients taking the total to 62. The operating margins at 16.65% were stable and above the company’s FY13 guidance of 16%. This strong Q2 performance has vindicated confidence that the company will be able to beat its FY13 revenue guidance of $265mn.
- Revenue Growth – Volume driven: Infinite’s Q2FY13 revenues of $63mn saw incremental revenue of $4.1mn q-o-q. Of this $3.7mn of incremental revenues was contributed by IMS business due to higher offshore volume growth. Pricing both at onsite and offshore declined by 4.41% and 4.76% respectively. Europe seizes to contribute anything to the topline with last BOT project ending in Q4FY12 and nothing new in pipeline.
- Margin – flattish: Operating Margins of the company declined by 14bps to 16.65% sequentially on the back of (i) higher other expenses emanating out of SI costs undertaken for APDRP and UIDAI projects in India and (ii) lower blended pricing q-o-q partially offset by (iii) higher gross margins – result of higher India based IMS business revenues. The hedging loss of Rs 83mn led to lower PAT margins of 9% against 11% in Q1FY13.
- Deal Details: The company added 6 new clients in Q2FY13. It signed 5 new service agreements in US across domains like BFSI, Telecom, Logistics etc. It won a number of deals in Q2 in Mobility, IP Leveraged solutions business and ADM which will start contributing in H2FY13.
- Growth Avenues: The company launched iTaaS (Text based cloud support) and a communication suite of products for carriers in IMS and Non-IMS Networks further strengthening its non-linear business which now contributes 18% to the topline. Non-ADM businesses now contribute >40% to the revenue. India (130%), IMS (214%), Energy-Utilities (694%) and Top-10 clients (8.7%) were major contributors to growth in Q2FY13.
- Guidance: The company continued with its FY13 revenue guidance of $265mn and operating margins at 16% taking the exchange rate at Rs 52/$. The company is expected to surpass its FY13 revenue guidance and also to report better margins given the continued Rs weakness.
Outlook and Recommendation: On the back of improved guidance and increased deal pipeline SPA Securities remain confident that the company would be able to meet expectations. USD revenue CAGR of 23% and operating margins of 16.80%/17.58% are estimated in FY13E/14E on the back of Non-Linear business increasing contribution partially offset by Rs appreciation, resulting in an EPS CAGR of 17.72% over FY12-14E. Thus, SPA Securities continues to recommend BUY with an 18-month TP of Rs 206 at 5.5x FY14E earnings.