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Attractive Mid-Cap: Infinite Computer Solutions

By Indianotes.com on 28 August 2014


ATTRACTIVE MID CAP IT STOCK
INFINITE COMPUTER SOLUTIONS(INDIA) LTD(Rs 168)
(BSE Code- 533154, NSE Code-INFINITE)
Equity-40.15 cr., Promoters’ Stake-71.53%.)
(P/E-6.5, Cash per share- Rs 27.22, Mkt. Cap-672 cr.)

Infinite Computer Solutions (India)(ICS), promoted by Sanjay Govil, is a global service provider of infrastructure management, intellectual property (IP) leveraged solutions and IT services, is significantly focused on the telecom vertical.. The other focus industry verticals include media, technology, manufacturing and healthcare. Its services span from application management outsourcing, packaged application services, independent validation & verification, product development & support, to higher value-added offerings including, managed platform and product engineering services. In the telecom vertical, its services to original equipment manufacturers (OEMs) and service providers include product engineering and lifecycle management, operational support systems (OSS) and business support systems (BSS). ICS had come with an IPO in January 2010 at Rs 165 per share. Infinite Computer Solutions is a global Information Technology service provider with expertise in provision of Application Management, Infrastructure Management, Product Engineering Services, Next-Gen Messaging Platforms & Enterprise Mobility Solutions.

The company specializes in providing traditional software services like application development and maintenance (ADM) and infrastructure management services (IMS) as well as in high-end areas like product engineering and intellectual property (IP) solutions. It derives its revenues mainly from the telecom and healthcare industries. The US is by far the biggest contributor to revenues. The company has global companies in the software and telecom space as its clients. Infinite has been recognized by NASSCOM amongst the Top 20 IT Players in India and by Forbes as Asia’s 200 Best-Under-a-Billion companies. ICS is a provider of innovative and leading edge messaging solutions and services to carriers and enterprises globally, enabling mobile communication via the latest technology including cloud messaging and social media. It has established its presence in most of the large telecom & IT services markets of the world with offices in the US at multiple locations, as well as in the UK, India, Singapore, Malaysia and China, thus increasing the geographical footprint in an aggressive manner.

Infinite Computer Solutions India consolidated net sales fell by 3.7% QoQ to Rs 388.59 cr. during the Q1 of the financial year 2014-2015 (1QFY15). The operating i.e. EBITDA (Earnings before Interest, Tax, Depreciation & Amortization) margin improved to 12.2% during the quarter as against the 9% seen during the previous quarter (4QFY14). The operating profit was up by 30.7% QoQ. The net profit increased by 83.4% QoQ to Rs 26.83 cr.. The EPS for Q1 stands at Rs 6.68. This was despite a huge increase in the tax rate sequentially. The management has been making an effort to reduce the dependence on the top client over the last few quarters. The company signed a new five year deal with the same client for fixed annual revenue. While this impacted the topline in the quarter, it will have a positive impact on the margins going forward. The company added 7 clients in the quarter. The management has stated that the business outlook remains positive and they have commenced hiring for the year. The company’s order book remains quite healthy. The company added its second client for its Rich Communication Suite (RCS) platform.

For the year ended March 2014, ICS had posted net profit of Rs 89.81 cr. on net sales of Rs 1,732.74 cr.(up 31.8%) on consolidated basis. The EPS for FY14 on a equity of 40.15 cr.(Promoters’stake-71.53% FII/DII stake-14.98%) stands at Rs 22.36 and the total dividend declared is 40% (Rs 4 per share).

Infinite Computer Solutions has delivered a credible performance in Q1. Going forward, the company will see a pick-up in revenues as the impact of the large client’s exit will no longer be felt on the topline. The management has retained their guidance for FY15 for a 10% growth in the topline and a 20-30% growth in the bottomline. Infinite is a good play among the mid-sized Indian IT stocks due to its presence in niche segments, excellent execution track record and strong debt free balance sheet with surplus cash of Rs 109.3 cr. (Rs 27.22 per share). A focus on non-linear revenues, strong client loyalty, good return ratios and low debt levels make Infinite Computer Solutions a good long term investment. The company has already developed its product pipeline for the future and its existing business is on a sound footing. At Rs 168, the stock trades at around 7.5 timesFY14E earnings(Rs 22.36) and at 6 times FY15E earnings (Rs 27- Rs 28).

Investors can start accumulating the Infinite stock at current levels and add more on declines for decent returns of 50%-60% over the next 8-12 months.

Disclaimer:  Sanjay Chhabria is an 
equity analyst and investment consultant based at Raipur (Chhattisgarh). At the time of writing this, he doesn’t have any position in the stocks mentioned above. He welcomes comments, feedback & investor queries at [email protected] and at 9893200307

Under no circumstances does the information in this report represent a recommendation to buy or sell stocks. This report has been prepared solely for information purposes and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Readers using the information contained herein are solely responsible for their actions and are advised to satisfy themselves before making any investments.

About Sanjay Chhabria
Sanjay Chhabria is an equity analyst and investment consultant based at Raipur (Chhattisgarh). He brings out a weekly investment newsletter "Market-View" to help retail investors make informed investment decisions. He welcomes comments, feedback & investor queries at [email protected] and at 9893200307.

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