Stock Review: Infinite Computer Solutions

 

Infinite Computer Solutions' double-digit profit growth in the past few quarters could not add much lustre to its stock performance over the past years. The stock earned a meager 5% return during the period compared with a 13% increase.

However, the company's decision to buy back shares is likely to bring momentum in its otherwise dull stock. The company started the share buyback, constituting 9.9% of Infinite's net worth on May 6, 2011. This will result in a cash outgo of nearly . 27 crore.

With revenues of . 883 crore in FY11, Infinite offers IT solutions in application management; infrastructure management (IMS) and intellectual property (IP) related segments to global clients. During the March 2011 quarter, the company witnessed a traction in its high margin messaging business, which added 10 basis points to its operating margin of 17.1% when compared with the previous quarter.

Its margin is expected to improve further with addition of a UKbased top-tier telecom company as a client for the messaging business. The company has increased its offshore revenue mix by 300 bps to 38% during the quarter against the previous quarter, which should support profitability.

The company's cash position fell by 8% sequentially to . 95 crore during the March quarter due to investment in Uttarakhand-based contract for Accelerated Power Development and Reform Programme. With a delay of two quarters, the project is likely to start contributing to the company's revenue by the first quarter of FY13. The company's account receivable days have reduced to 90 against 102 during the previous quarter. This should improve the company's working capital cycle in the coming quarters.

The company has provided a strong 27-30% revenue growth guidance for the current fiscal. At the current market price of . 164.2, the stock trades at 6.7 times its earnings for the trailing twelve months. The valuation seems to be at the lower end of the P/E range of 6-8 for other IT mid-tier companies. Given the buyback offer and an optimistic growth forecast, the company is likely to report a sustained momentum in the coming quarters.