3i Info

Investors Have A Lot To Look Forward To Despite Possible Changes In Promoter Holding

 

THE stock of 3i Infotech has appreciated by over 12% in the past five trading sessions despite high volatility in the broader market. The Mumbai headquartered mid-tier IT company has seen revival in investor interest on the back of reports of a possible stake sale by its promoter ICICI Bank.

   In line with most of its bigger and smaller peers, 3i Infotech has posted a better return than benchmark indices in 2009 so far. During the year until December 10, the stock has jumped more than two-fold (120%) whereas the Sensex has gained 74%. 3i Infotech's return compares well with the 113% gain and BSE IT indices.

   Though the year-long gain of 3i Infotech looks impressive, much of this can be attributed to the rise in its stock price in the first half of the year. This is evident from the fact that the stock has gained just over 4% since July 2009 compared with a 14% gain in the Sensex and a 53% jump in IT indices.

   3i Infotech has garnered Rs 2,570 crore in revenue in the trailing twelve months (TTM). Though this reflects a robust yearon-year topline growth of 46%, its net profit of Rs 294.6 crore has grown at a slower pace of 31%. The main reason for the decelerated profit growth is rising interest expenses. In the past twelve months, the company's interest spend has nearly doubled to Rs 124 crore.

   The company had reported a total debt burden of Rs 2,286.2 crore as of September 2009, which is substantial compared with the debtfree business model of some of its peers. Much of this was to fund its past acquisitions as part of the inorganic strategy to grow business.

   To reduce the reliance on debt funding, the company raised Rs 317 crore in September through qualified institutional placement (QIP). This is likely to support its bottomline in the coming quarters.

   At the current price level, the stock trades at about six times its TTM earnings. This is lower than P/E of 8-10 of some of its mid-tier peers. 3i Infotech has been a prominent mid-sized player in the banking, financial services and insurance (BFSI) segment. BFSI has been one of the few sectors to see a revival globally, after the recent recessionary phase. This is likely to benefit the company in the coming quarters. Given this, investors have more to look forward to irrespective of possible changes in the company's promoter holding pattern.