3i Infotech
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs400
Current market price: Rs300
Price target revised to Rs400
Result highlights
- 3i Infotech has reported a growth of 22.5% quarter on quarter (qoq) and 75.2% year on year (yoy) in its consolidated revenues to Rs210.2 crore for the fourth quarter. The service business grew by 28.3% sequentially to Rs102.6 crore whereas the product business grew by 17.4% qoq to Rs107.6 crore.
- The operating profit margin (OPM) continued to firm up. The OPM improved by 20 basis points to 25% (the highest ever reported in any quarter) on the back of a sharp improvement in the margins of the service business.
- The benefits from the lower software product development charges were nullified by the higher depreciation and lower other income. However, an increase in the tax rate resulted in a relatively lower growth rate in the earnings of 16.7% qoq and 83.7% yoy to Rs32.2 crore, in line with our expectations of Rs32.3 crore.
- On a full year basis, the consolidated revenues and earnings have grown by 56.8% and 80.6% respectively. The OPM has shown an improvement of 370 basis points to 24.2% during the year.
- In terms of operational highlights, the company continues to show a healthy growth in the pending order book that has grown by 33% qoq to Rs568.7 crore. This is more than double of Rs266 crore as in March 2006.
- The growth guidance for FY2008 is also healthy. Revenues are guided in the range of Rs1,000-1,100 crore (a growth of 49-64% over the total turnover of Rs670.8 crore). The earnings per share (EPS) are guided in the range of Rs20.1-21.5 per share (on a fully diluted equity base as on March 2007).
- Along with the results, the company has rewarded the shareholders with a bonus issue of 1:1 and a dividend of 20% (or Rs2 per share).
- To factor in the healthy order backlog and robust growth guidance, we have revised our FY2008 earnings estimate by 3.9% and introduced our FY2009 estimate in the note. At the current market price the stock trades at 14.1x FY2008 and 11.2x FY2009 estimated earnings (based on fully diluted equity including the Euro 30-million foreign currency convertible bond [FCCB] issue closed in April 2007 and earnings are adjusted for dividend on the preference shares). We maintain our Buy call on the stock with a revised price target of Rs400.
VIEWPOINT
Infrastructure Development and Finance Company
Plans to raise equity capital
Infrastructure Development and Finance Company (IDFC) was established in 1997 sponsored by the Government of India, Reserve Bank of India (RBI) and Infrastructure Development Bank of India as a private sector enterprise with the sole objective of promoting infrastructure financing. The company's future plans are based on the four-by-four strategy. It would pursue four objectives (profitability, balance sheet expansion, innovation and thought leadership) focus on four sectors (transport, energy, telecom and industrial/commercial infrastructure), its portfolio would comprise four products (treasury/structured products, equity/asset management, project finance and advisory) and it would also like to explore four frontiers (urban services, rural infrastructure, health and education).