Infotech Enterprises delivered a poor operational performance in the quarter, contrary to our expectations. The revenues and net profit before IASI share grew sequentially by 5.7% and 3.7% respectively with operating margin declining by sharp 220 bps qoq to 20.4%. Operating profit growth was negative 4.5% qoq which was pushed up by higher other income and lower tax provision. The high IASI profit share (entire of whic h was exceptional) v/s a negative contribution last quarter led to phenomenal 32.6% qoq growth in adjusted net profit. For the full year FY08, company’s performance stood robust with revenue growth of 49.7% and adjusted profit growth of 66.3%. Management is confident of maintaining the growth momentum with stable operating margin in FY08.
Outlook
Though the actual EPS for FY07 was higher than forecasted (Rs17.9), we revise our FY08 EPS estimate marginally downward by 1.2% to Rs23 mainly to factor the expected substantially lower IASI profit share yoy. We maintain our Market Performer stance on the company with a one-year target price of Rs391 based on 17x FY08E EPS. Despite lower potential share price upside, we remain positive on the company for its exhibition of consistent strong revenue growth and margin improvement over past 8-10 quarters and strong visibility, unlike any o ther mid-cap company. Further, our estimates have upside risk from inorganic growth on which the company is very keen.
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Warm Regards,
Rajiv Mehta
India Infoline Ltd
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