Infinite Computer Solutions – IPO

IPO details

Price Band: Rs 155-165

Net issue size: Rs178.3-189.8 crore

Date: January 11-13 '10


INFINITE Computer Solutions (India) is raising funds from the primary market. Its IPO consists of 57.33 lakh new shares, and White Rock Investments, a venture investor will sell its 57.69 lakh shares in the company. Of the total money to be raised, The funds will be spent on expanding its Gurgaon facility and to acquire new businesses Post IPO, the promoter group stake will reduce
from 78% to 63.2%.

BUSINESS:

The company is a mid-sized IT player. It provides infrastructure management, IT applications and solutions based on IP. US is its largest market with 90% share in revenue. Telecom vertical contributes nearly 60% to the company's total revenue. Infinite has a very high client concentration. Its top client accounts for one-third of the revenue, while top 10 clients constitute 91%. Its employee base has increased from over 2,135 in FY 07 to 2,385 by the end of September '09.

FINANCIALS:

Its revenues saw a rather abrupt jump of 44% in FY 09. This is surprising given that the revenues had grown by just 12% between FY 05 and FY 08. Further, net profit grew three-folds during the same period. The company has also reported a sharp improvement in margins. In FY 09, its operating margin shot up to 12% from 7.4% a year ago. The management has clarified that its receivables are inflated due to special arrangements with one of its biggest clients Its debtor days stand at 100. This is slightly higher than 80-90 days for some other mid-tier companies.

VALUATIONS:

At the higher-end of the price band (Rs 165), the company demands post listing P/E of 15.1 on FY 09 net profit and 10 on annualised HY 10 earnings. Most mid-tier companies currently trade at a P/E of more than 10.

   Though the IPO looks attractive based on P/E valuations, it needs to be noted that the company's business model heavily depends upon a chunk of clients in one domain i.e., telecom. It also needs to be seen whether the company sustains the sharp improvement in its profits and profitability, post listing. Given these factors, the issue can be considered only by investors with a high-risk appetite.