Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now


You can switch off notifications anytime using browser settings.
12,018.40-24.8
Stock Analysis, IPO, Mutual Funds, Bonds & More

Infotech Enterprises: Investors should use the correction to buy the stock

Infotech Enterprises' low valuation compared to its large-cap peers is another reason why analysts are still betting on the stock.

, ET Bureau|
Updated: Apr 14, 2014, 03.32 PM IST
0Comments
Though the ongoing brand building and organisational restructuring exercise has acted as a drag on profits in recent quarters, it should help Infotech Enterprises win better clients and enjoy higher valuations in the coming quarters.
Though the ongoing brand building and organisational restructuring exercise has acted as a drag on profits in recent quarters, it should help Infotech Enterprises win better clients and enjoy higher valuations in the coming quarters.
While Infotech Enterprises reported a revenue growth of 5.3% on a quarter-over-quarter (q-o-q) basis in the third quarter of 2013-14 , its net profit fell due to the increased employee and branding costs. A similar trend is expected in the fourth quarter as well.

The topline will continue to show growth in the US dollar terms due to the recovery in the US and Europe, and also due to the continued momentum in engineering businesses. However, the earnings before interest, tax, depreciation and amortisation (EBITDA) margin and net profit are expected to fall q-o-q. Besides the fact that the fourth quarter is seasonally weak, the appreciation of the rupee against dollar to the 60 level will also affect profitability.​

Infotech Enterprises, an engineering solutions provider to various industries like aerospace, energy, medicine, oil and gas, mining, heavy equipment, transportation, telecom and utilities, is also using the inorganic route to propel growth. To add muscle to its telecom arm, the company recently acquired the US-based Softential Inc through its American subsidiary, Infotech Enterprises America Inc.

Infotech Enterprises: Investors should use the correction to buy the stock

Though it paid 1.1 times the Softential’s 2012-13 annual revenue, the acquisition will add to the company’s earnings per share (EPS). The return on equity (RoE) is also expected to improve by 50 basis points at the consolidated level due to this acquisition. With the capacity to generate strong free cash flow and balance sheet—cash balance, including liquid investments, stood at Rs 655 crore at the end of December 2013—Infotech Enterprises is expected to use the acquisition route in the future as well.

The recent correction, triggered by a fall in the US dollar and due to a shift in investor preference from defensive to cyclical sectors, provides a good entry point for this counter. The low valuation compared to its large-cap peers is another reason why analysts are still betting on the stock.

Though the ongoing brand building and organisational restructuring exercise has acted as a drag on profits in recent quarters, it should help Infotech Enterprises win better clients and enjoy higher valuations in the coming quarters.

To develop a unique identity, the firm is also changing its name to Cyient. The board has already approved this measure and the shareholder approval is expected to come through soon via the ongoing postal ballot.




Infotech Enterprises: Investors should use the correction to buy the stock


SELECTION METHODOLOGY

We pick the stock that has shown the maximum increase in consensus analyst rating during the past month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in rating indicates that the analysts are becoming more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search will be restricted to stocks which have been covered by at least 10 analysts.

Also Read

IEPFA launches investor helpline

Who make up retail investors?

Zerodha steps up as angel investor

DHFL insolvency process starts, investors' claims sought

Stock selloff is a wake-up call for investors

Comments
Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.

Other useful Links


Follow us on


Download et app


Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service