India Ratings and Research (Ind-Ra) has affirmed Infinite Computer Solutions' (India) (Infinite) long-term issuer rating at 'IND AA-'. The outlook is stable.
The affirmation reflects Infinite's ability to maintain strong net adjusted leverage of below 1x in FY15 despite a fall in EBITDA margins and flat revenue growth. The company had cash and cash equivalent of Rs 1.9 billion at FYE15 while its debt remained negligible at Rs 591 million.
EBITDA margins fell to 10.9% and 9.6% and in FY15 and FY14, respectively, due to a change in the company's effort mix (FY13: 14.5%; FY12: 17.3%) and lower work force utilisation levels. the company's application development and management (ADM) business remained stable; the onsite effort with in the ADM business has increased significantly to about 79%-82% in FY15 from 73% in FY13. While the billing rates of onsite efforts are high the margins are lower due to the higher costs. Also, the utilisation levels of work force reduced from a peak of 89% in FY13 to 84% in FY14 and 79% in FY15. This, together with year-on-year wage inflation, led to a drop in margins.
Revenue remained flat in FY15 after a 24.6% yoy growth in FY14. This was due to a ramp down of one of the key customers starting 3QFY14. Also, there was a delay in the ramp-up of one of the new customers with whom Infinite has signed a contract worth USD 100 million, spread over five years. The revenue growth in FY14 was underpinned by higher billing rates due to 11% rupee depreciation. While currency depreciation was 1.2% during FY15, lower onsite efforts off set the 5% increase in billing rates.
Infinite's liquidity remained strong in FY15. The company’s cash generating ability is reflected in average cash flow from operations of Rs 1 billion over FY12-FY15. Therefore, the impact of the cash outflow due to Infinite’s buy-back programme will be negligible. Infinite is in the midst of a buy-back program as per which it can buy up to 1.45 million shares at a price not exceeding Rs 220 per piece. The total cash outflow due to the buyback would be around Rs 300 million.
The ratings continue to factor in the company's high customer concentration with the top customer contributing over 50% and the top five customers contributing around 80% to the total revenue. However Infinite's nearly 10 year-long association with this customer and it being one of the few approved vendors to provide IT Services for this large customer across the globe partly mitigates the risk. Although, high customer concentration and falling margins reflect an increasing business risk, Ind-Ra does not expect and an immediate impact on the credit profile of the company.
