Jul 15, 2013 06:18 PM IST | Source:

Buy Infosys; target Rs 3100: Emkay

Brokerage house Emkay Global Financial Services is bullish on Infosys and has recommended buy rating on the stock with a target price of Rs 3,100 in its July 12, 2013 research report.

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Emkay's research report on Infosys

  • June'13 qtr results beat exp with a 2.7 percent QoQ USD rev growth and flat margins (Emkay est: +0.7 percent QoQ rev growth, -50 bps QoQ decline). Profit beat aided by better op performance
  • Strong revenue performance led by growth in top clients/ US. IT Services vol growth, highest since Sep'11 qtr aided by strong growth in onsite volumes
  • Results not picture perfect yet. Subdued performance in App Maintenance and IMS, decline in revenues from Europe and further increase in qtrly attrition remain the sore points
  • Raise FY14/15/16E EPS by 5/4.5/2.6 percent each on slight raise in USD rev est, lower currency resets.

"Infosys reported revenues at USD 1,991 mn(+2.7 percent QoQ) ahead of estimates (Emkay est: USD 1,952 mn) with EBITDA margins flat sequentially at 26.5 percent ( V/s our expectations of ~50 bps sequential decline). Profits at Rs 23.7 bn (-0.8 percent QoQ) were a tad higher than expectations aided by better revenue/margin performance despite lower than expected other income. Sequential Vol growth in IT Services was 4.1 percent, highest since Sep'11 levels albeit aided by onsite volume growth pick up ( note that onsite YoY volume growth trajectory has improved to ~20 percent V/s 6 percent in June'12 qtr while offshore volume growth trajectory has remained largely unchanged at ~10 percent for more than 8 quarters). Sore points remain in the form of (1) sluggish performance in revenues from Application Maintenance, IMS and BPO Service lines, (2) decline in revenues from Europe(-3 percent QoQ decline in June'13 qtr) and (3) further increase in qtrly annualized attrition (increased further to 24.4 percent V/s 20.3 percent in Mar'13 qtr, we see this reducing going forward."

"Infosys retained it's FY14 USD revenue guidance at 6-10 percent YoY growth (implies an extremely conservative asking rate for the next 3 qtrs in our view ( 1 percent QoQ decline at the lower end and +1.5 percent QoQ growth at the upper end) and we see possible upsides here through H2FY14. We continue to back ‘Return to Predictable ways' under Mr Narayan Murthy's stewardship for Infosys ahead as also highlighted in our upgrade note (Infosys : It's all about leadership, upgrade to BUY dated June 7'2013) unlike the volatile financial performance that we have witnessed from Infosys through FY11-13."

"Lower currency resets and upward tweaks in our FY14/15/16E rev est (refer table ‘Changes in earnings estimates' below) drive a 4.9 percent/4.6 percent/2.6 percent raise in our FY14/15/16E EPS to Rs 173.3/195.3/211.6 respectively. While a 10 percent upmove today is a reaction to ‘relatively subdued expectations', we back an improvement in operational performance and return to predictable ways ahead. Retain BUY, TP Rs 3,100(V/s Rs 2,900 earlier)," says Emkay Global Financial Services research report.

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