Stock Review: 3i Infotech

 

 

MUMBAI-BASED, mid-tier IT company 3i Infotech has underperformed on bourses over the past one year. Its stock fell by nearly 30% during the period compared to benchmark Sensex which gained 16%. The company had reported near-stagnation in its topline over the four quarters ended March 2010.

   Its June 2010 quarter performance raises hopes for a turnaround in the coming quarters. The company is once again witnessing traction in solutions for private equity, private wealth management products and e-commerce.

   During the June quarter, its consolidated topline grew by 7% to 637 crore on a year-onyear basis. The operating margin continued to remain flat mainly due to a one-time charge on account of the acquisition of the remaining 40% stake in FinEng Solutions.

   3i Infotech has adopted inorganic route to beef up its products portfolio. In 2008, it had acquired a domestic tax management portal, Taxsmile. It now boasts of over 2 lakh subscribers. The company further intends to acquire players in the travel, investment and consulting, healthcare and education sectors.

   In line with the broader IT sector, attrition remains a concern for 3i Infotech. Its IT services division recorded an attrition of 25% in the June quarter, much higher than 15-18% recorded by its bigger peers. Being a mid-tier player, the company may find it difficult to retain its talent pool without sacrificing profitability.

   3i Infotech has seen a steady rise in its order book over the past three quarters. It had outstanding orders worth 1,730 crore as of June 2010. New initiatives in the e-commerce and consumer related segments may trigger future growth. At the current market price of 61.3, the scrip is trading at nearly 9 times the earnings per share for the trailing 12 months. Given the growth opportunities in the existing and new business segments, the stock may report a turnaround in its performance in the next few quarters.