Infinite Computer Solutions (India) Limited or ICS is tapping the capital markets to raise approximately Rs 178-190 crs in a price band of Rs 155-165. The issue has opened on Monday the 11th January and closes on Wednesday the 13th of January. The issue comprises of a fresh issue of 57.33 lakh shares and an offer for sale of 57.69 lakh shares.

Business

ICS is a global service provider of Infrastructure Management, Intellectual Property (IP) leveraged
Solutions and IT services, focused on the Telecom, Media, Technology, Manufacturing, and Healthcare industries. Their services span from Application Management Outsourcing, packaged application services, Independent Validation & Verification, product development & support, to higher value- added offerings, including, managed platform and product engineering services.
The focus of the company has been to cater to the Fortune 100 to Fortune 500 clients. With this objective they started the company in the United States of America, to get marquee clients. Early relationships of the company were with customers like Verizon, IBM, GE and AOL. These customers have been acquired during the period 2000-2004 and they are all continuing relationships for the company. The next set of big customers includes Alcatel, ACS, Fujitsu and Tellabs.

The company is a US focused company and has consciously chosen this as their business. The origin of the company was in the US with a strategy to service US based clients. There would therefore always be a geographical risk attached to the business. Having attained a base in the US and the continued support of key clients, the next stage was to increase margins. This was achieved by shifting the business from on shore to offshore. In a span of less than three years the mix of on-shore/offshore has changed broadly speaking from 75/25 to 25/75, decreasing costs significantly. This has helped margins increase in a big manner.

The second major initiative undertaken by the company is the change in product mix where after having ensured long term multiyear contracts with key customers, they were able to leverage relationships to move up the value chain and also improve the product mix from lower margins to higher margin offerings.

The company is not into R & D related activity or offerings, hence in times of downturns, the business does not suffer. This business of choice has ensured that even in a bad year like 2008-2009, the company stood its ground.

The company is very heavily dependent on its top five and top ten customers for its share of business. This again is by choice as ICS believes it is better to grow with a few large clients than be with a large number of small clients. Typically the top five customers account for between 85-90% of its revenues, and even though this percentage has been reducing gradually it is not a very significant number. The customer’s orders have been growing with times and there is substantial revenue visibility from these large clients.

Financials

The company’s revenues have grown from Rs 341.52 crs in financial year ended March 2008 to Rs 495.87 crs in March 2009 and Rs 318.12 crs in half year ended September 2009, implying a growth of 45% in the completed year of 2009 over 2008. In the current half the number for half year of 2008 is not available to make the comparison but it would be apt to presume that growth rates would continue to be robust.

On the net profit front the figures are Rs 17.50 crs for the year ended March 2008, Rs 45.13 crs for the year ended March 2009 and Rs 37.14 crs for the half year ended September 2009. The growth here has been very impressive with the change in March 2009 over March 2008 being 258%. The current half year the growth is impressive but because of not having comparative half year numbers it is difficult to compare.

The EPS for the company based on March 2009 numbers is Rs 11.80, while for the half year ended September 2009 would be Rs 20.40 considering annualised numbers and also considering the onetime charge in the half year numbers.

If one were to consider the fully diluted valuations the EPS would be Rs 18.65 corresponding to a PE of 8.31 at the lower band and 8.85 at the higher band. This makes the issue quite attractive.

The company is raising money to upgrade its existing IT infrastructure facility in Bangalore and to set up a new centre in Gurgaon. This is expected to cost about Rs 25.75 crs. Another big chunk roughly 38 crs is for the purpose of acquisition. The space in which such acquisition is expected is in the intellectual Property related activity where there would be a revenue share model. The company is in advanced stages of talks in regards to the acquisition.

Comparison

It is difficult to find a comparison for this company amongst the listed or non listed entities. ICS is primarily into the telecom and media, healthcare, manufacturing sectors with its strongest presence in the first three verticals. It is the focus of the company to service large corporations based in the US but global clients from within the top Fortune 500 clients. The closest competitor is Tech Mahindra in the telecom space. In terms of corporate governance it can be compared with a Mindtree. The company is typically one of three or one of five suppliers to its customers. The company being a mid size player and catering to all large size players enjoys a strong customer loyalty and there have been no significant client losses in the last five-six years.

Conclusion

The company is in a niche space and has been growing to a strategy. They have moved from being a US based onshore company to a US centric client based but offshore based. Their clients are typically large fortune 500 clients. They are leveraging their mid size in terms of costs and are very competitive on pricing. Being a midsized company helps in being highly flexible in their business model. They also leverage their skill sets and have been concentrating on their domain expertise.

ICS is an attractively priced issue which is likely to be very heavily subscribed, offering instant appreciation.

Apply for short term gains and then re-enter after the share has settled down.

Sebi Disclaimer: – I intend to subscribe to the issue.