PINC maintains 'buy' on 3i Infotech
PINC has maintained 'buy' recommendation on 3i Infotech with a 12-month price target of Rs 58. PINC believes that at current levels the stock offers value vis-a-vis growth rates.
By ET Online |
MUMBAI: PINC has maintained 'buy' recommendation on 3i Infotech with a 12-month price target of Rs 58. PINC believes that at current levels the stock offers value vis-a-vis growth rates. At the CMP of Rs 43, 3i Infotech is trading at a P/E of 3 times and EV/EBIDT of 3.8 times its FY09 estimates.
PINC believes that 3i Infotech's exposure to the BFSI vertical, a leveraged balance sheet and its ability to fund new growth would continue to be concern areas in the coming quarters but the brokerage believes the recent de-rating of valuations factors in these concerns to a large extent.
Citing the current uncertainty in the BFSI vertical, 3i has indicated that it expects organic growth rates to moderate in FY10 (excl Regulus revenues). FY09 outlook remains unchanged as current order book of Rs13.7bn provides visibility. FY10 growth rates have been a concern areas for us, as mentioned in our Q1 and Q2FY09 updates, due to a leveraged balance sheet (incl. FCCBs) which may not enable raising of further debt inorder to finance new acquisitions.
While PINC FY09 estimates remain unchanged having cut in FY10 outlook for 3i Infotech. The brokerage has estimated organic growth rates (excl. Regulus) of 15 per cent from our earlier expectations of 25 per cent. Hence, the bokeragae has downgraded overall sales outlook by 6 per cent to Rs 2,640 crore while OPM expectations has toned down by 20 basis points to 18.3 per cent. Accordingly, the brokerage has revised downwards net profit and diluted EPS estimates by 11 per cent to Rs 290 crore and Rs 16.9 respectively.
As 3i Infotech's FCCBs are well below conversion levels, a leveraged balance sheet continues to be a concern area as it may inhibit the company from carrying out multiple acquisitions to achieve higher growth rates, a strategy followed by it so far. Consequently, any major equity dilution plans to fund new growth could act as a dampener on valuations.
PINC believes that 3i Infotech's exposure to the BFSI vertical, a leveraged balance sheet and its ability to fund new growth would continue to be concern areas in the coming quarters but the brokerage believes the recent de-rating of valuations factors in these concerns to a large extent.
Citing the current uncertainty in the BFSI vertical, 3i has indicated that it expects organic growth rates to moderate in FY10 (excl Regulus revenues). FY09 outlook remains unchanged as current order book of Rs13.7bn provides visibility. FY10 growth rates have been a concern areas for us, as mentioned in our Q1 and Q2FY09 updates, due to a leveraged balance sheet (incl. FCCBs) which may not enable raising of further debt inorder to finance new acquisitions.
While PINC FY09 estimates remain unchanged having cut in FY10 outlook for 3i Infotech. The brokerage has estimated organic growth rates (excl. Regulus) of 15 per cent from our earlier expectations of 25 per cent. Hence, the bokeragae has downgraded overall sales outlook by 6 per cent to Rs 2,640 crore while OPM expectations has toned down by 20 basis points to 18.3 per cent. Accordingly, the brokerage has revised downwards net profit and diluted EPS estimates by 11 per cent to Rs 290 crore and Rs 16.9 respectively.
As 3i Infotech's FCCBs are well below conversion levels, a leveraged balance sheet continues to be a concern area as it may inhibit the company from carrying out multiple acquisitions to achieve higher growth rates, a strategy followed by it so far. Consequently, any major equity dilution plans to fund new growth could act as a dampener on valuations.
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