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Analyst Research Report Snapshot


Infinite Computer Solutions Ltd.- Management Meet Update




Kisan Ratilal Choksey Shares and Securities Private Limited


29 Nov 2013





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Infinite Computer Solutions Ltd.- Management Meet Update CMP: Rs 126 We met Mr. Upinder Zutshi, MD & CEO and Mr Sanjeev Gulati, Executive Vice President – Finance of Infinite Computer Solutions Ltd (Infinite) to understand the company’s strategy and future growth prospects. Infinite is midsized IT company primarily focusing on telecom (36.5% of total revenue) and healthcare industry (16.8% of total revenue). The company has guided for revenue growth (in USD terms) of 12% to 14% YoY in FY14E; whereas it expects Operating Profit to decline by 18% YoY to Rs.180 crore and Net Profit to dip by 22% to Rs.102 crore in FY14E. We do not have rating on the stock but considering the company’s guidance it is trading at P/E multiple of 5.1 times FY14E EPS. Cheap valuations compared to peer sets average forward P/E multiple of 10 times seems attractive; however at the same time one needs to factor in the company’s risky business model on account of high dependence on its top client. Key takeaways from the Management Meet: - • Near term revenue growth and margin profile dependent on momentum in top client IBM is the top client of the company and contributes around half of its total revenue. Moreover, over the span of last 4 quarters entire incremental revenue came from this particular client. Being one of the 6 premier partners, the management is confident of attaining mid-teen growth per annum in this account, going forward. However high dependence on IBM raises 2 major concerns (1) Business from IBM is at very low margin i.e. around high single digit as compared to mid-teens for Rest of the Business; and (2) The company is primarily involved with IBM as subcontractor; which normally does not tend to be sticky and hence has risk of being taken away from sub-contractor with short notice period. • Whereas traction in Rich Communication Suite (RCS) will determine growth trend in medium term Telecom operators are losing their revenue stream from messages (sms and mms) to OTT applications such as WhatsApp. Hence they are considering feature rich new system based on RCS standards. Infinite has already worked on RCS and is hoping to add handful of clients in next 12 to 18 months. Hence, revenue from this area will start reflecting only 2 years down the lane; depending on traction registered by telecom operators for RCS system and number of clients added by Infinite. • Dividend payout ratio will continue to be around 30% The company is likely to continue its policy of 30% dividend payout ratio. However, considering the management guidance of dip in net profit to Rs.102 crore in FY14E, we believe dividend per share is also likely to come down marginally to Rs.7.5 in FY14E from Rs.9 in FY13.

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