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Recommendations

Tuesday, April 18, 2006

Sharekhan Investor's Eye


3i Infotech 
Cluster: Emerging Star
Recommendation: Buy 
Price target: 244
Current market price: Rs180

3i Infotech acquires Datacons

3i Infotech has announced the acquisition of Datacons, a Bangalore-based software products company, offering niche products for asset management companies. Datacons has a comprehensive range of products for the mutual fund industry that covers accounting (MFund/AM), investor services (MFund/ISS), and dealing and decision support services (MFund/dealing). 


Infosys Technologies 
Cluster: Evergreen
Recommendation: Buy 
Price target: Rs3,504
Current market price: Rs3,230

Exceeding expectations

Result highlights

  • For the fourth quarter of FY2006, the consolidated revenue of Infosys Technologies grew by 3.6% quarter on quarter (qoq) and by 32% year on year (yoy) to Rs2,624 crore. The growth was lower than the consensus expectation of a 5-6% growth qoq and marginally higher than the guidance given by the company. 
  • The company took a severe beating on the profitability front with a 230-basis-point sequential decline in the operating profit margin (OPM) to 31.7% in Q4. The OPM was dented largely by the appreciation of the rupee and the company's conscious decision to bring down its employee utilisation rate.
  • The consolidated earnings grew by 3.7% to Rs673 crore, much lower than the consensus estimate of Rs720 crore and our estimate of Rs696 crore. In spite of the steep decline in the margins and the jump in the depreciation charges, the sharp growth in the other income component enabled the earnings growth to keep pace with the growth in the revenue.
  • On the full year basis, the revenue and earnings grew by 33.6% and 29.9% respectively. The OPM was also quite stable at 33.5% as compared with a 33.7% growth in the previous fiscal. 
  • The annual guidance of a 28.7-30.7% (Rs12,254-12,446 crore) growth in the revenue and a 26.4-28.4% (Rs13.9-15.6 per share) growth in the earnings is much ahead of the market expectations. This is one of the most aggressive guidance in the past five years and shows the management's growing confidence in the visibility of the company's growth on the back of a pick-up in the discretionary spending by the clients. 
  • The management has rewarded the shareholders with a 1:1 bonus issue and a special silver jublee dividend of Rs30 per share (600%). This is in line with the market expectations.
  • We maintain the Buy call on the stock with a revised price target of Rs3,504 (23x its FY2008 revised earnings estimate of Rs152.3 per share).