CRISIL maintains Infinite Computer` valuation grade to 5/5

CRISIL Research has come out with its report on Infinite Computer Solutions (India). The research firm expects revenues to register a two-year CAGR of 13.3% to US$ 283 mn in FY14 (17% to Rs 14.4 bn) driven by the messaging platform acquired from Motorola and Infinite's transition to higher-value services such as analytics and mobility.

Infinite Computer Solutions (India) Ltd (Infinite) is a mid-tier IT services and solutions provider. It has always focussed on large blue-chip companies, mostly US-based, on the back of higher onsite presence and lower billing rates. Lessening of business from a top client and expiry of the Fujitsu BOT contract are concerns. However, we expect the company to maintain its growth trajectory based on the recent long-term deal wins. We maintain the fundamental grade of 3/5, indicating that Infinite's fundamentals are good relative to other listed securities in India.

In recovery mode post hiccups in the recent past
Infinite is trying to recover from the major setbacks of the past three quarters. While business from one of the top clients has reduced, other large client accounts have grown. Infinite has also won large long-term deals over the past quarter, which increases growth visibility. The company plans to scale up the value chain by increasing the share of higher-value services and cross-selling them across all its six verticals. The ability to bag more business from the existing and some of the recently acquired clients will provide an upside.

Messaging platform is the key growth driver:

We expect Infinite's 10-year deal with Motorola for the latter's messaging platform will be a key growth driver. This contract provides high revenue visibility; it accounted for 14% of Infinite's top line in FY12 with a much higher EBITDA margin. The deal places Infinite in the bigger league in the IP business. Smooth execution will make it a preferred vendor for similar deals.

Risks: Client concentration, high debtor days
a) Top five clients continue to contribute a major portion of Infinite's total revenues (73%). Business trimming by any of the large accounts will have a huge impact on Infinite. b) Delays in the government's R-APDRP project have increased debtor days to 102 days, which is much higher than that of its peers.

Expect two-year revenue CAGR of 13.3% in US$ terms:
We expect revenues to register a two-year CAGR of 13.3% to US$ 283 mn in FY14 (17% to Rs 14.4 bn) driven by the messaging platform acquired from Motorola and Infinite's transition to higher-value services such as analytics and mobility. Adjusted EPS is expected to grow at a lower CAGR of 9.0% over FY12-FY14.

Valuations the current market price has 'strong upside':
CRISIL Research has used the discounted cash flow method to value Infinite at a fair value of Rs 157 per share. This fair value implies P/E multiples of 5.1x FY13E and 4.7x FY14E earnings. We maintain the valuation grade of 5/5.

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