Credit Suisse initiates coverage of Infotech with an `Outperform’ rating

INFOTECH ENTERPRISES

RESEARCH: CREDIT SUISSE

RATING: OUTPERFORM

CMP: RS 360

Credit Suisse initiates coverage of Infotech with an `Outperform’ rating and a target price of Rs 440. Credit Suisse’s positive thesis on Infotech is based on: 1) its leadership position in the offshore engineering /R&D space which would be a strong growth area, 2) the company’s deep customer relationships, with increasing penetration into R&D budgets of top customers, and 3) high margin upside stemming from low utilisation.

Credit Suisse expects Infotech to deliver industry leading FY11 growth in top line (22% y-o-y in dollar terms) and earnings (45% y-o-y ). The company’s recent contract wins from large customers like Hamilton Sundstrand should start flowing into numbers in the coming quarters, leading to strong growth and driving consensus upgrades. Infotech is trading at 10x FY3/11E P/E, which is at the lower half of the historical range of 4-20 x. The P/E discount to Infosys at 55% is also higher than historical averages. The target price is based on P/E multiple of 11.5x applied on FY3/11E EPS of Rs38.