Stock Review: Infinite Computer Solutions (ICS)

Posts Good Sales, Net Profit Growth, But Client Base A Worry

 

THE stock of Infinite Computer Solutions (ICS) has been hovering around its offer price of . 165 over the last five months after its list-ing in February 2010.

   The stock, however, witnessed a renewed investor interest on Wednesday post its robust September quarter performance. The scrip gained nearly 9% during the single session following the company's upbeat revenue and profit guidance for FY 11.

   The New Delhi headquartered Infinite Computer Solutions (ICS) pro-vides IT services and intellectual property (IP)-related solutions to telecom, manufacturing, and healthcare domains.

   ICS delivered double-digit sequential growth in sales and net profit during the September quarter buoyed by the increase in its IP-related revenue, which is nonlinear in the sense that it does not require a proportionate increase in the headcount. The company was also able to retain its margin at 16.6% after witnessing a sequential drop of 50 basis points (bps) in the previous quarter.

   Going ahead, the company has retained its earlier guidance of 877 crore on the higher side of the forecast band, which would be 32% more than the FY10 revenue. Net profit is expected to grow by 31% to . 104 crore. A shade lower growth in profit compared with the sales growth reflects pressure on margin due to currency fluctuations. It had reported a forex loss in the September quarter.

   On a positive note, the company's focus on a single client is gradually declining. In the September quarter, its single-largest client contributed 33% of total revenue, down from 42% two quarters ago. The share of its other top-10 clients has increased over the quarters indicating a larger penetration of ICS in these accounts.

   On the flip side, however, the number of active clients has shrunk substantially from 70 in FY09 to 47. This is despite the fact that the company has added new clients in each of the last three quarters. This can cause some concern given the smaller nature of its operations.

   At current CMP, ICS's stock traded at FY11 estimated P/E of close to eight. The company has been able to report ro-bust year-on-year growth in the past. This, however, would become challenging given the increasing base of the company. It needs to be seen whether the company can retain its growth streak on a higher revenue and profit base in the coming quarters as well.