Recommendation: Buy
CMP = Rs 130
Price target: Rs 180
Result highlights:
- For Q3FY2008, 3i Infotech has reported a revenue growth of 14.2% quarter on quarter (qoq) and 84.9% year on year (yoy) to Rs317.3 crore. The sequential growth was aided by incremental revenues of around Rs16 crore (or around a 6% sequential growth) from its recent acquisitions with the bulk contribution coming from J&B Software (around Rs 15 crore).
- The operating profit margin (OPM) improved by 40 basis points qoq to 24.7%, despite the increase in the selling, general and administration (SG&A) cost as a percentage of the sales to 22.2% as compared with 21.9% in Q2FY2008. The margin improvement was largely driven by the 65-basis-point improvement in the gross margin due to a favourable revenue mix. The higher margin product business contributed 52% of the total revenues as compared with 46.7% in Q2FY2008. Consequently, the operating profit grew by 15.9% qoq and 83.9% yoy to Rs 78.5 crore.
- In terms of operational highlights, the order backlog continued to show a growth of 7.7% qoq to Rs784.5 crore which was largely contributed by a 13% sequential growth in the order backlog in the product business. The company added 150 employees (net of employee addition from acquisitions) in Q3, taking the total strength to around 6,500 employees. The revenues from the top ten clients (excluding ICICI Bank) declined sharply by 20.1% on a sequential basis.
- The company has maintained its revenue guidance at Rs 1,150-1,250 crore and the earnings guidance at Rs 165-175 crore. In terms of outlook, the company is not witnessing any change in the demand environment and has limited exposure to the
- At the current market price the stock trades at 13.7x FY2008 and 10.9x FY2009 earnings estimates. The stock has outperformed the tech index and the other tech stocks in the last quarter and I believe that it would continue to do so
- I maintain Buy call on the stock with the price target of Rs 180.
