Infotech Enterprises

 

 

THE scrip of Hyderabad-headquartered Infotech Enterprises lost over 6% during Wednesday's trade. Investors dumped the stock after the poor show of the midtier IT company in the June '10 quarter.

   Infotech Enterprises, which grossed Rs 1,053 crore of revenue in the past 12 months, provides IT solutions in the fields of engineering design and geospatial information services. It has witnessed weakness on bourses since past one month compared to the BSE's benchmark Sensex. The depressed stock performance reflects investors' concerns over the deteriorating operating parameters of secondrung IT exporters.

   Infotech's first quarter results were not assuring either. The company's operating profit fell in double digits despite a decent 3.6% increase in revenues over the previous quarter. Its salary costs and travel expenses rose faster than the topline growth, thereby pulling down operating profit by 23%.

   The IT exporter also faced headwinds due to adverse currency movements during the June quarter on a sequential basis. The appreciating rupee against the pound and the euro — the two major currencies in which the company earns revenue — dented its operating margin further to just over 16% against 22% in the previous quarter.

   A matter of concern is that during the June quarter, Infotech witnessed a lower offtake from its top five clients. Its European business also suffered due to economic problems in the region.

   The company may also face pressure while retaining talent, given the uptick in hiring of experienced IT professionals or laterals over the past two quarters. It reported a significant increase in salary expenses sequentially, even though its headcount has not changed much from the previous quarter. This means that it had to hike salaries during the quarter, even though it faced pressure on the operating front.

   At the Wednesday's close of Rs 176, the Infotech stock traded at 5.5 times its trailing twelve-month earnings. This is lower than P/Es of 7-10 commanded by other mid-tier IT companies.

   Going ahead, the management believes that demand traction will improve for the type of services rendered by Infotech. The company expects to report a better growth in the second quarter with buoyancy in telecom and government segments. However, more than one-thirds of its revenues come from the European market. Hence, it needs to be seen whether the company is able to grow its business in the region, which is grappling with economic slowdown.