Infosys likely turning the corner; up target: JP Morgan

JP Morgan has raised its target price on Infosys to Rs 3,200 from Rs 3,100, maintaining an "overweight" rating, saying the software services exporter is likely "turning the corner" in an improving demand environment.

"Revival in bread-and-butter business last quarter, flexibility in deals improving win rates, embracing a more realistic margin profile, attempt to re-engage with employees and willing to re-invest margin gains from a bloated bench are central to our positive view on Infosys," said analysts Viju George and Amit Sharma.

The India's second largest software services exporter, surprised the street last month with better-than-expected results for the third quarter and also raised its full year guidance, contrary to most analysts who were expecting a cut.

Infosys has "explicitly indicated" that it would like to maintain EBIT margins in the mid-20 percent, which the analyst say is "realistic." Further, George and Sharma feel the company is unlikely to add employees in "meaningful numbers" next financial year given its significant bench and that will also give margin leverage.

As such the analysts expect the IT industry growth in calendar 2013 will be 3-5 percentage points higher than in 2012.

Discretionary spending is expected to drive the incremental growth in FY2014, which will be a further boost for Infosys, they add.

"We believe investors can play the cyclical recovery in sector through Infosys," George and Sharma said.

Infosys shares were up 2.8 percent at Rs 2,919 on NSE in afternoon trade. The stock has gained 22 percent since it announced results on Jan 11.