May 18, 2012

Result Update - Q4FY12

Infinite Computers
LOOKING UP Sensex: 16328 CMP: INR 86.2 Target: INR 190.0 Information Technology

Infinite came out with its 4QFY12 results, in-line with our estimates. The company has shown positive volume growth of 0.5% to $53.1mn after two quarters of sequential decline. The FY12 revenue of $220.7mn and EPS of INR 27.7 exceeded company's guidance. The company has guided towards a 30% USD revenue growth in FY13E. We expect the company to exceed their EPS guidance of INR 34.3 in FY13E growing at 25.2%. With higher than industry average growth rates we expect a rerating of the stock from the current 3x LTM PE multiple to 5x with a target price of INR 190.
4QFY12 and FY12 Revenues - return to growth The company witnessed a sequential revenue growth of 0.5% in 4QFY12 to $53.1mn (3.1% decline YoY). The onsite pricing declined by 1.5% with stable offshore pricing. FY12 revenues of $220.7mn (SPAe: $220mn) grew 14% on the back of growth from BFSI and healthcare verticals (Others, up by 229% YoY). Margins decline Infinite witnessed a 468bps decline in EBITDA Margins for 4QFY12 (15.3%) over 3QFY12 due to (i) higher one-time contract manpower cost with one of the largest customer's transition project coming to end and (ii) INR appreciation. In FY12 the EBITDA Margins expanded by 59bps to 17.3% but higher tax outgo caused a lower PAT growth of 12.6% to INR 1,207mn Growth Avenues The company has hinted towards a USD revenue growth rate, higher than industry growth rate, at 30% for FY13E. The EBITDA Margins are expected to be lower at 16% from the FY12 margins of 17.3% as the company expects to invest the surplus into extending its next generation 3G messaging platforms products.

We expect the company to meet its revenue guidance on the back of higher growth from recent deal wins and product launches. Outlook and Valuation Infinite has exceeded its FY12 revenues and margin guidance on the back of higher growth from BFSI and Healthcare verticals and INR depreciation. We expect the growth momentum to continue on the back of marquee deals (Messaging Platform) and products (to be launched in 2QFY13). We have factored in a USD revenue growth of 21%/25% for FY13E/FY14E. We expect the margins to come off a bit due to (i) higher product investments (ii) Visa Costs hence contract manpower increasing and (iii) Wage Inflation though partially offset by INR depreciation. We have factored EBITDA Margins of 16.9%/17.7% for FY13E and FY14E. Thus on the back of higher than industry growth, stable margins and exceeding company's guidance, we expect the stock to be re-rated upwards. We continue to recommend BUY for the stock with a 2 year target price of INR 190.0 based on 5x FY14E earnings of INR 38.

Shareholding (%)
Promoters FIIs DIIS Others

Mar-12
66.62 10.90 5.54 16.94

Key Data
BSE Code NSE Code Bloomberg Code Reuters Code Shares Outstanding (Mn) 533154 INFINITE ICSL IN INFI.NS 44.0 10.0 3,705.8 169.9 / 56.2 8,450.0 34.9% 1.0

(INR mn)
Net Sales Growth (%) EBIDTAM (%) Adj. PAT Growth (%) Adj. EPS (INR) P/E (x) EV/EBIDTA EV/Sales RoIC (%) RoCE (%)

FY11
8,833 32.96% 16.74% 1,072 35.31% 24 3.46 4.63 0.77 21.84 28.84

FY12
10,558 19.53% 17.33% 1,207 12.63% 27 3.07 3.32 0.58 21.04 26.46

FY13E
13,611 28.91% 16.94% 1,511 25.17% 34 2.45 2.67 0.45 22.67 27.71

FY14E
15,354 12.81% 17.71% 1,673 10.72% 38 2.22 2.09 0.37 23.48 26.02

Relative Price Performance

120 100 80 60 40 20 Nov-11 Dec-11 Aug-11 Sep-11 May-11 Feb-12 Mar-12 Apr-12 Oct-11 Jun-11 Jul-11 May-12 Jan-12

Face Value Mcap (INR Mn) 52 Week H/L 2W Avg. Qty, NSE+BSE Free Float (%) Beta

Infinite

Sensex

Amit Aggarwal
amit.aggarwal@spagroupindia.com Ph. No. 91 4289 5600 Ext.632

Information Technology Fig. 1: Quarterly Performance, 0.49% volume growth

Quarterly Performance Q4FY11 55 2,479 1,405 715 359 14.48% (67) 426 17.19% 72 354 14.28% 4 33 (14) 369 67 18.20% 302 12.19% 7 Quarterly Numbers Q1FY12 59 2,623 1,354 245 1,025 39.06% 577 447 17.05% 74 373 14.22% 5 17 15 400 100 25.08% 300 11.42% 7 Q2FY12 56 2,571 1,299 489 784 30.47% 350 434 16.87% 75 359 13.96% 3 35 13 404 97 23.94% 307 11.95% 7 Q3FY12 53 2,694 1,351 537 807 29.94% 267 539 20.02% 90 450 16.70% 4 64 15 525 132 25.17% 393 14.59% 9 Q4FY12 53 2,669 1,319 698 653 24.45% 243 409 15.34% 90 320 11.97% 7 (54) 20 278 71 25.46% 207 7.76% 5 Q4FY12 0.49% -0.94% -2.41% 30.05% -19.10% Q3FY12 -6.07% 4.78% 4.03% 9.73% 2.95% QoQ Growth Trend (%) Q2FY12 -4.14% -1.97% -4.04% 99.47% -23.52% Q1FY12 7.05% 5.83% -3.67% -65.69% 185.38% Q4FY11 11.30% 11.52% 19.84% na -48.13% YoY Growth (%) -3.14% 7.68% -6.16% na 81.75%

Revenues (USD Mn) Revenues (INR Mn) Less: Employee Cost Less: Contract Manp. Cost Gross Profit Gross Margins Less: Other Oper. Exp. EBIDTA EBIDTA Margins Less: Depreciation EBIT EBIT Margins Less: Interest Charges Add: Forex Gain / (Loss) Add: Other Income PBT Less: Taxes Tax Rate PAT PAT Margins EPS (Diluted)

-24.10% 0.34% -28.96%

24.31% 19.33% 25.36%

-3.00% 1.08% -3.81%

4.98% 2.91% 5.40%

15.04% 108.38% 5.42%

-3.92% 24.55% -9.72%

-47.33% -47.14%

27.89% 28.71%

2.54% 3.36%

-0.79% -0.02%

11.68% 11.26%

-31.48% -29.69%

Fig. 2: Engagement Segmental Performance

Engagement Breakdown Q4FY11 33.4 48.8 17.8 Q1FY12 35.8 47.0 17.2 Share Proportion (%) Q2FY12 26.9 59.1 14.0 Q3FY12 21.9 59.6 18.5 Q4FY12 23.0 60.5 16.5 Q4FY12 5.5 2.0 (10.4) QoQ Growth Trend (%) Q3FY12 (23.5) (5.3) 24.1 Q2FY12 (28.0) 20.5 (22.0) Q1FY12 14.7 3.1 3.4 Q4FY11 (2.9) 11.0 55.1 YoY Growth (%) (33.3) 20.1 (10.2)

Fixed Price Time & Material Revenue Sharing

Fig. 3: Vertical Segmentation Performance

Vertical Breakdown Q4FY11 51.9 5.0 18.9 9.8 5.4 9.0 Share Proportion (%) Q1FY12 45.2 6.7 17.7 15.6 6.1 8.8 Q2FY12 40.3 6.9 17.9 10.3 6.4 18.2 Q3FY12 41.2 7.1 18.8 2.7 5.0 25.2 Q4FY12 36.3 7.4 20.0 1.6 4.1 30.6 Q4FY12 (11.5) 4.7 6.9 (40.4) (17.6) 22.0 QoQ Growth Trend (%) Q3FY12 (4.0) (3.3) (1.3) (75.4) (26.6) 30.1 Q2FY12 (14.5) (1.3) (3.1) (36.7) 0.6 98.2 Q1FY12 (6.8) 43.4 0.3 70.4 20.9 4.7 Q4FY11 9.1 (4.1) 10.5 83.6 16.2 (9.8) YoY Growth (%) (32.3) 43.4 2.5 (84.2) (26.5) 229.3

Telecom & Media Manufacturing Healthcare Energy and Utilities Retail Other

(Source: Company, SPA Research)

Information Technology Fig. 4: Geographical Segmentation Performance

Geographical Breakdown Q4FY11 78.4 10.3 7.1 4.2 Share Proportion (%) Q1FY12 70.0 4.5 20.7 4.8 Q2FY12 73.4 5.5 14.3 6.8 Q3FY12 80.1 4.4 8.1 7.4 Q4FY12 82.6 2.4 7.5 7.5 Q4FY12 3.6 (45.2) (7.0) 1.9 QoQ Growth Trend (%) Q3FY12 2.5 (24.9) (46.8) 2.2 Q2FY12 0.5 17.2 (33.8) 35.8 Q1FY12 (4.4) (53.2) 212.1 22.3 Q4FY11 7.9 161.1 (25.8) 14.0 YoY Growth (%) 2.0 (77.4) 2.3 73.0

USA Europe India APAC

Fig. 5: Service Segmentation Performance

Horizontal Breakdown Q4FY11 53.5 20.4 8.0 18.1 0.1 Q1FY12 51.7 17.9 6.5 22.3 1.6 Share Proportion (%) Q2FY12 55.7 12.8 10.1 19.4 2.0 Q3FY12 57.4 17.5 11.3 11.3 2.5 Q4FY12 60.0 17.0 11.9 8.6 2.5 Q4FY12 5.0 (2.4) 5.8 (23.5) 0.5 QoQ Growth Trend (%) Q3FY12 (3.2) 28.4 5.1 (45.3) 17.4 Q2FY12 3.3 (31.5) 48.9 (16.6) 19.8 Q1FY12 3.4 (6.1) (13.0) 31.9 1,612.8 Q4FY11 1.2 26.8 (10.0) 51.8 (14.4) YoY Growth (%) 8.6 (19.3) 44.1 (54.0) 2,321.5

ADM IP Leveraged Testing IMS ESS

Fig. 6: Client Augmentation Performance

Client Conc. Breakdown Q4FY11 25.0 81.0 93.0 7.0 Q1FY12 25.7 77.9 92.5 7.5 Share Proportion (%) Q2FY12 36.5 75.1 93.4 6.6 Q3FY12 39.2 82.9 92.2 7.8 Q4FY12 36.4 73.7 89.0 11.0 Q4FY12 (6.7) (10.7) (3.0) 41.7 QoQ Growth Trend (%) Q3FY12 0.9 3.7 (7.3) 11.0 Q2FY12 36.1 (7.6) (3.2) (15.6) Q1FY12 10.0 3.0 6.5 14.7 Q4FY11 (4.1) 14.8 13.1 (8.3) YoY Growth (%) 41.0 (11.9) (7.3) 52.2

Top Client Top 5 Clients Top 10 Clients Non Top 10 Clients

Fig. 7: Client Details

Client Metrics Active Clients Added US$ 20mn US$ 10mn US$ 5mn US$ 1mn Q4FY11 51 4 3 5 6 15 Q1FY12 50 4 3 6 8 15 Q2FY12 53 5 3 6 8 15 Q3FY12 55 5 4 6 9 14 Q4FY12 60 4 4 5 10 17

Fig. 8: Employee Details

Employee Metrics Q4FY11 Billable - Offshore 2,958 Billable - Onsite 1,203 Technical Staff - Non Billable 316 Sales 56 Support 273 Total Employees 4,806 India Headcount 3,542 Headcount Outside India 1,264 Net Additions 338 Utilization Rate (%) 83.0 Attrition Rate (%) 17.3
(Source: Company, SPA Research)

Q1FY12 2,881 1,061 303 55 270 4,570 3,451 1,119 (236) 85.0 19.7

Q2FY12 2,600 1,205 276 65 277 4,423 3,152 1,271 (147) 91.0 19.2

Q3FY12 2,331 1,201 273 60 278 4,143 2,869 1,274 (280) 90.0 21.5

Q4FY12 2,156 1,288 225 61 258 3,988 2,630 1,358 (155) 90.0 18.2

Information Technology Fig. 9: Lower Attrition . . . . .

60% 56% 52% 48% 44% 40% Q4FY10 Q2FY11 Q4FY11 Q2FY12 Q4FY12 Employee Cost (LHS)
Source: Company, SPA Research

Fig. 12: . . . and higher onsite revenues.

25% 20% 15% 10% 5% 0% Attrition Rate (RHS) 70 60 50 40 30 20 10 0 Q4FY10 Q2FY11 Q4FY11 Q2FY12 Q4FY12 Onsite Revenue
Source: Company, SPA Research

Offshore Revenue

Fig. 10: . . . and higher Utilization Rate lowering employee costs . ..

60% 50% 40% 30% 20% 10% 0% Q4FY10 Q2FY11 Q4FY11 Q2FY12 Q4FY12 88% 84% 80% 76% 92%

Fig. 13: Onsite Pricing took a dip keeping offshore pricing stable.
80 70 60 50 40 30 20 10 0 Q4FY10 Q2FY11 Q4FY11 Q2FY12 Q4FY12 21.7 21.0 20.3 19.6 18.9 18.2 17.5

Gross Margins (LHS)

Source: Company, SPA Research

Utilization Rate (excl. Trainees) (RHS)

Onsite Pricing (LHS)

Source: Company, SPA Research

Offshore Pricing (RHS)

Fig. 11: . . . but higher Contract Manpower cost, lowers operating margins . . . .
35% 28% 21% 14% 7% 0% Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Operating Margins
Source: Company, SPA Research

Fig. 14: Lower non-linear revenues (IMS and IP) caused the margins dip but acts as a future margin tailwind.
14 12 10 8 6 4 2 0 Q4FY10 Q2FY11 Q4FY11 IP Leveraged
Source: Company, SPA Research

Contract Manpower Cost

Q2FY12 IMS

Q4FY12

Information Technology Fig. 15: After 2 quarters of sequential revenue decline, revenue grew in 4QFY12, though employee growth continued to decline.
20% 15% 10% 5% 0% -5% -10% Q4FY10 Q2FY11 Q4FY11 Q2FY12 Q4FY12
Inremental Growth Incremental top 10 client growth
Source: Company, SPA Research

Fig. 17: Revenue grew outside the top 10 clients who actually showed degrowth.
8 6 4 2 0 -2 -4 -6 Q4FY10 Q2FY11 Q4FY11 Q2FY12 Q4FY12

Employee Growth
Source: Company, SPA Research

USD Revenue Growth

Fig. 16: T&M revenue share declined with increase in Revenue sharing and Fixed Bid projects.
45% 36% 27% 18% 9% 0% Q4FY10 Q2FY11 Q4FY11 Q2FY12 Fixed Bid Q4FY12 Revenue Sharing
Source: Company, SPA Research

Fig. 18: Revenues from Top 6-10 clients also increased.

60 50 40 30 20 10 0 Q4FY11 Q1FY12 Top Client
Source: Company, SPA Research

Q2FY12 Top 2-5 Clients

Q3FY12

Q4FY12

Top 6-10 Clients

Information Technology Financials

Income statement Year End March (INR mn) Net Sales (USD Mn) Growth (%) Net Sales Growth (%) Less: Employee Cost Less: Other Op. Exp. Total Optg. Exps. EBIDTA (excl OI) EBIDTA Margin (%) EBIDTA Growth (%) Less: Depreciation EBIT EBIT Margins (%) Interest Expense Other Income PBT Tax Expenses PAT PAT Margins (%) PAT Growth (%) APAT APAT Margins (%) APAT Growth (%) FY11 194 37.39% 8,833 32.96% 4,764 2,590 7,354 1,479 16.74% 26.73% 167 1,311 15 17 62 1,356 285 1,072 12.13% 27.58% 1,072 12.13% 35.31% FY12 221 14.01% 10,558 19.53% 5,322 3,406 8,728 1,830 17.33% 23.76% 329 1,502 14 19 124 1,607 400 1,207 11.43% 12.63% 1,207 11.43% 12.63% FY13E 267 21.04% 13,611 28.91% 6,906 4,398 11,305 2,306 16.94% 26.01% 377 1,929 14 21 134 2,042 531 1,511 11.10% 25.17% 1,511 11.10% 25.17% FY14E 334 25.00% 15,354 12.81% 7,915 4,719 12,634 2,720 17.71% 17.95% 454 2,266 15 35 119 2,349 558 1,792 11.67% 10.72% 1,673 10.90% 10.72% Balance Sheet Year End March (INR mn) Share Capital Reserves and Surplus Total Networth Secured Unsecured Total Debt Deferred Tax Liability Source of Funds FY11 440 3,723 4,163 297 163 460 162 4,785 FY12 440 4,521 4,960 220 180 400 242 5,602 FY13E 440 5,505 5,945 220 130 350 242 6,537 FY14E 440 6,476 6,915 220 100 320 242 7,477

Net Block CWIP Goodwill Investments Current Assets Current Liabilities Net Current Assets Deferred Tax Assets Application of Funds

1,686 163 542 168 5,356 3,265 2,091 135 4,785

1,857 546 645 6,214 3,871 2,343 211 5,602

2,280 546 1,020 7,077 4,686 2,391 299 6,536

2,776 546 1,260 7,618 5,090 2,527 368 7,477

Key Ratio Year End March Per Share Data (INR) Reported EPS Adj. EPS Growth (%) CEPS DPS BVPS FCFPS EVAPS Return Ratios (%) RoNW RoIC Du Pont Analysis Tax Burden Interest Burden Sales Turnover Asset Turnover Debt Liabilities RoE Valuation Ratios P/E (x) P/BV (x) PEG (x) EV/ Sales (x) EV/EBIDTA (x) Payout Ratio (%) FY11 24 24 26.48% 23 3 95 (3) 12 28.84 21.84 79.02% 103.42% 0.15 2.07 1.16 28.84% 3.46 0.89 13.06 0.77 4.63 12.31% FY12 27 27 12.63% 26 7 113 34 12 26.46 21.04 75.12% 107.02% 0.14 2.06 1.14 26.46% 3.07 0.75 24.31 0.58 3.32 33.93% FY13E 34 34 25.17% 32 7 135 19 17 27.71 22.67 74.00% 105.86% 0.14 2.26 1.11 27.71% 2.45 0.62 9.74 0.45 2.67 34.85% FY14E 38 38 10.72% 39 7 157 32 21 27.87 23.48 75.00% 98.45% 0.15 2.21 1.09 26.02% 2.22 0.54 20.67 0.37 2.09 41.97%

Cash Flow Year End March (INR mn) EBT Less: Other Income/Excp. Add: Depreciation Add: Interest Paid Less: Taxes Paid Change in Working Capital Others CFs from Operations (a) Change in Fixed Assets Change in Investments Others CFs from Investments (b) Change in Equity Change in Debt Dividend Paid Interest Paid CFs from Financing (c) Change in Cash (a+b+c) Opening Cash Exchange Difference Closing Cash FCF FY11 1,356 167 17 (285) (370) 885 (986) 596 (390) (17) (17) (34) 461 548 1,010 (118) FY12 1,607 329 19 (400) 374 1,928 (437) (477) (410) (1,324) (60) (19) (79) 526 1,010 1,536 1,473 FY13E 2,042 377 21 (531) (253) 1,656 (800) (375) (527) (1,702) (50) (21) (71) (117) 1,536 1,419 835 FY14E 2,230 454 35 (558) 242 1 2,405 (950) (240) (702) (1,892) (30) (35) (65) 448 1,419 1,867 1,419

Information Technology

Sharad Avasthi

Dy Head - Equity Research

sharad.avasthi@spagroupindia.com

Tel.: +91-33-4011 4800

Ext.832

Disclaimer: This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. SPA Securities Limited (hereinafter referred as SPA) is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The intent of this document is not in recommendary nature. The views expressed are those of analyst and the Company may or may not subscribe to all the views expressed therein The report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon such. SPA or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Neither the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. SPA or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations. SPA and/or its affiliates and/or employees may have interests/ positions, financial or otherwise in the securities mentioned in this report. SPA has incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report. Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Group/Directors ownership of the stock 3. Broking relationship with company covered - No - No - No

This information is subject to change without any prior notice. SPA reserves the right to make modifications and alternations to this statement as may be required from time to time. Nevertheless, SPA is committed to providing independent and transparent recommendations to its clients, and would be happy to provide information in response to specific client queries.

SPA Securities Limited : SPA House, Nyay Sagar, Near Gurunanak Hospital, Bandra (E), Mumbai - 400051, Tel. No. : +91-022-4289 5600
For More Information Visit Us At : www.spasecurities.com

SPA CAPITAL SERVICES LIMITED SPA COMTRADE PRIVATE LIMITED Investment Advisory services, AMFI Reg. No. ARN-0007 Member of NCDEX & MCX. NCDEX TMID-00729, NCDEX FMC No.NCDEX/TCM/CORP/0714 SPA MERCHANT BANKERS LTD. SEBI registered Category-1 Merchant Bankers SEBI Regn. No. INM000010825 SPA INSURANCE BROKING SERVICES LTD. Direct Broker for Life and General Insurance Broking IRDA Lic. Code No. DB053/03

SPA Securities Ltd NSE Cash NSE Future & Option NSE Currency Derivatives BSE Cash BSE Currency Derivatives MCX-SX Currency Derivatives OTCEI PMS CDSL DP NSDL DP

SEBI Reg. Nos. INB231178238 INF231173238 INE231178238 INB011178234 INE011178234 INE261178238 INB200891838 INP000003179 IN-DP-CDSL-485-2008 IN-DP-NSDL-316-2009