Despite muted results Edelweiss retains a Buy on Infotech Enterprises

Infotech Enterprises has come up with mixed if not disappointing earnings for the March 2013 quarter. Yet, it is in line with Edelweiss forecast and the latter has retained the company as a Buy!

Domestic brokerage firm Edelweiss has retained its ‘Buy‘ recommendation on Infotech Enterprises even though the latter’s results were muted, and has fixed a target price of Rs220. In a report to its clients, Edelweiss pressing for its case for buying Infotech said, “While operational performance has seen an improvement, in terms of higher offshoring and better free cash flow (FCF) generation, we believe growth remains the biggest lever for further operational efficiencies and margin sustenance”. However, the management remains optimistic and expects the upcoming fiscal to be better.

According to Edelweiss, growth is one of the keys for operational improvement, and that lies in the order backlog. Infotech has $290 million worth of orders due next year and a pipeline of $210 million. Edelweiss report states: “Better FCF generation (30% of EBITDA against 18% in FY12) and improving margin in a tough scenario, we believe growth remains the biggest lever for any operational improvement hereon.”

According to their interaction with management, the brokerage says, “The management has stated that it expects 250-350bps and 80bps impact to margins due to wage hikes and branding costs respectively in FY14E. It expects to offset these by improving utilisation, higher offshoring and pyramid rationalization.”

Infotech Enterprises saw its revenue increase 11.3% year-on-year (y-o-y), in rupee terms, at Rs464 crore, while it was up 3.6% y-o-y in dollar terms. Its operating margin stood at 17% while operating profit was down 4.3% y-o-y, at Rs79 crore when compared to the corresponding period last year. Its net profit sustained a much further 22.4% downfall, in rupee terms, to round off the quarter at Rs54.2 crore. Overall  rupee revenue growth was -2.2% and $ was at -1.8%. It consists of pricing improvement of 0.1% and an exchange rate impact of -0.4%.

Top five clients reported sequential decline of 6.8% whereas Top 10 clients declined by 8.9%. Revenue from beyond top 10 clients grew 4.8% QoQ (flat in previous quarter).

During the quarter, 19 customers were added, 11 in ENGG and 8 in UT&C divisions. It also opened a Silicon Valley office in Santa Clara, California (USA). Furthermore, a new SEZ facility was inaugurated at Kakinada, Andhra Pradesh. The new development center is Infotech’s seventh in India and currently employs 850 people. The capex for the quarter was Rs36 crore while debtors turnover ratio has mildy improved by three days on a sequential basis.

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No doubt, strong execution was seen from Idea Cellular once again in its 4Q performance, says Nomura

Virtually every domestic carrier expects to maintain pricing stability, which the brokerage thinks should continue in the next 1-2 quarters. However, uncertainty prevails beyond that, says Nomura Equity Research in its Quick Note on Idea Cellular

Private sector mobile services provider Idea Cellular reported solid 4Q (fourth quarter) results with 9% sequential revenue growth and 14% EBITDA growth (19% on adjustment for regulatory charges) and 120 basis points (bps) margin improvement (240 bps on adjustment). This was driven by a strong 8% minute growth, flat RPMs and strong rise in data contribution. These observations were made by Nomura Equities Research in its Quick Note on the company’s fourth quarter performance.


This result is a welcome relief given wider expectations around improving trends from rationalizing competitive dynamics—although underlying voice RPM’s declined 1% q-o-q, but realization on data appears to have improved by 9%. Data is now 15% of revenues and Idea closed with 5.1 million 3G subscribers.

EBITDA margins improved, both in Idea's existing and new circles, although it appears to have been led by flat network costs, which Nomura expects could rise once again going ahead. IDEA announced a maiden dividend of Rs0.3; which implies yield of less than 1%.


No doubt, strong execution was seen from Idea once again. Virtually every domestic carrier expects to maintain pricing stability, which the brokerage thinks should continue in the next 1-2 quarters; however, uncertainty prevails beyond that.


Moreover, regulatory uncertainty remains significant, and Nomura believes valuations of FY14F P/E 24x continue to remain expensive. The brokerage has maintained ‘Reduce’ on the stock.


According to Nomura, revenue is 4% above, EBITDA is 6%-9% above our and consensus expectations and reported NPAT is 4% above estimates, but 15% above consensus. The brokerage forecasts a strong quarter from Idea with revenue growth of 9% q-o-q and EBITDA growth of 14% q-o-q, with margins expanding to 28% (120 bps q-o-q). Adjusting for one-off license and WPC regulatory charges of Rs760 million, EBITDA growth would have been stronger at 19% q-o-q and margins at 29%.


In terms of costs, network operating costs (consol.) have remained broadly flat q-o-q, despite continued rollout of new cell sites (4,000 incremental sites) and dropped to 24% of service revenues versus 26% in 3Q.This has helped margin improvement, though it is likely this could once again rise in the future as Idea continues with its 3G rollout. As percentage of revenues, roaming charges declined by 40bps, while license costs rose 130bps q-o-q. Adjusted for one-off items in the license costs, it would have remained flat at 10.7%. Other than which, all other operating expenditure items were flat as a percentage of sales.


Idea witnessed strong revenue growth in the quarter was driven by an 8% q-o-q growth in minutes volume and also strong improvement in data/VAS revenues q-o-q. The services provider added 11 billion minutes in the reporting quarter, which is one of the strongest it has seen in past several quarters. While overall, RPM’s held steady at 41 paisa, underlying voice RPMs were down 1% q-o-q.


According to Nomura, data/VAS revenues had a strong pick-up, rising 13% q-o-q to c Rs9.1 billion. Idea notes that realization on data improved in this quarter by 9% q-q to 34pasia per MB (from 31 paisa in 3Q) and data volume grew 14% q-o-q. Data contribution inched up to 15.2% of ARPU versus 14.6% in the previous quarter. Idea had 5.1 million 3G subscribers and data ARPU was Rs55.


Idea declared its maiden dividend of Rs0.3 or 3% of equity share capital and could be a reflection of its improving comfort around its balance sheet and cash position. Capex for FY13 was Rs34 billion (compared to Rs30 billion guidance) and capex for FY14 is expected to be at Rs35 billion.


The company’s capex guidance for FY14 remains at Rs35 billion, excluding any spectrum related payout.

Key numbers from Idea Cellular’s 4Q numbers

  • Revenues of Rs 61 billion were up 9% q-o-q and 13% y-o-y. This was driven by an 8% q-o-q growth in minutes to 143 billion in the fourth quarter. RPM was flat at 41 paisa and adjusted for data contribution, core voice RPM fell 1% q-o-q.


  • Reported EBITDA was up 14% q-o-q to rs16.7 billion, with margins of 27.6%, up 120 bps q-o-q.


  • Net PAT of Rs3 billion was up 30% q-o-q.


  • Subscriber additions of 8 million were re the highest in the past eight quarters; while ARPU of Rs167 was up 6% q-o-q.


  • For the data segment, customers rose 5 million to 26million and ARPU grew 6% to Rs55.


Idea reported a good improvement on churn rate too—blended churn was down to 4.3% against average of 10% over the past two years.


Twist in the tale: CEBBCO’s Ajay Gupta quits

The board of directors of CEBBCO took one whole month to accept Ajay Gupta’s and another director, Akhil Awasthi, resignation. What took it so long?

In a new twist to the tale to the Commercial Engineers & Body Builders Co (CEBBCO) saga, the company has released a startling notice to the Bombay Stock Exchange (BSE). The contents of the notice finally confirm what we had written earlier: Ajay Gupta has indeed quit. What is puzzling is why was this not disclosed earlier or considered by the board? The fact that it was considered and disclosed by the board of directors a month later speaks volumes about the lax regulations and ethics. What the company’s promoters, key shareholders and members of the board did in this interim is anyone’s guess. In fact, we had written “What Is Really Going On in CEBBCO?”, where we asked whether Ajay Gupta had quit, based on a reader’s experience with the company.

A Moneylife reader actually called up CEBBCO’s office last month only to find out that Ajay Gupta had mysteriously quit. But there was no notice on the BSE on this regard. The public relations firm, Dickenson-Seagul, was no longer handling CEBBCO’s account. Even the company’s in-house public relations department did not answer the call.

The letter to BSE, released on 25th April, states: “The board considered the resignation letter dated 26 March 2013 of Mr Ajay Gupta, whole time executive director of the company, who was solely responsible for managing the corporate and financial affairs of the company for couple of years and after due deliberation decided to keep it in abeyance till the formalities relating to handing over charge to an appropriate person and a status report of the projects exclusively managed by him.”

That’s a one month’s gap to consider the resignation! What took the board so long to consider when it should have been an immediate concern? As of now, it would seem that Ajay Gupta is still in charge until someone takes over. But more than this, what is going on what the company? Deepak Towary has been appointed chief executive officer by the board.

What happened in the one month interim is anyone’s guess. All this while, shareholders of the company were scratching their heads as to why their company’s share price was tanking and eroding their networth since beginning of the year? Earlier when we had written a piece about CEBBCO’s share price tanking 35% in two days, Ajay Gupta had denied that anything was wrong with the company (Our pledged shares not being sold in market: Ajay Gupta, Cebbco). Earlier last year, Enam and several brokers had heavily recommended the stock.

In the same letter to the BSE, it is learnt that Akhil Awasthi, a nominee director of Tata Capital Growth Fund had also resigned, but much earlier than Ajay Gupta, on 18 March 2013. His resignation was accepted only on 25 April 2013! As of 31 March 2013, Tata Capital Growth Fund holds 60,05,401 shares, or 10.93% of CEBBCO. Was there a feud between Ajay Gupta and Akhil Awasthi?

More pertinently, a new internal auditory has bee appointed to “strengthen the system and processes” in the company. The statement released to the BSE states: “The board appointed M/s TMG & Associated, Chartered Accountants, Mumbai as new internal auditor of the company in place of M/s Sameer Jain & Associates to strengthen the system and processes in the company as the company has grown manifold in terms of sales and number of manufacturing locations during last couple of years.”

The board of directors of CEBBCO has also reconstituted a remuneration committee which includes Sudhir Vadehra, SP Shah and Ravi Gupta.




3 years ago

Cebbco might have taken orders from Non-Tata group. So it may be the reason for Tata Capital directors resign.
My view: Cebbco is not integral part of Tata. It can take order, if it is profitable.

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