Infosys an outperformer; target of Rs 2675: Credit Suisse

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Credit Suisse has maintained an outperformer rating on Infosys Technologies with a target of Rs 2675.

Credit Suisse report on Infosys Technologies:

Infosys reported its 4Q FY3/07 results and FY3/08 guidance on Friday.

 

Strong FY3/08 guidance clearly imply robust macro environment,  thereby reducing the biggest risk from the sector. USD based revenue growth guidance of 28-30% YoY (EPS growth of 26-28%)  is one of the strongest in company.s history.

 

However, weak 4Q FY3/07 results clearly indicate that all is not well with the company. Company missed 4Q rupee-based revenue guidance and margins declined by 100 bps QoQ. Weak utilisation and hiring numbers indicate that slowdown was due to a couple of large customers.

 

Post results, we have reduced our EPS numbers by 3-4% to account for higher share count. Our net profit numbers remain unchanged.

 

Reasonable valuations (24x FY3/08 EPS) and good growth guidance gives us comfort on 12-month performance of the share.  We maintain our OUTPERFORM rating and Rs2675 target price.  Stronger rupee, it could not be denied that slowdown in a couple of large clients caught Infosys management by surprise. This is clearly evident in sharply lower utilisation rates and weak hiring.

 

We believe that problems in the quarter were  Infosys  specific and  could be contained within one quarter. Indeed, Infosys management guided to revenue growth of 5.2% QoQ in 1QFY3/07. EPS is expected  to remain flat QoQ on the back of wage hike and higher visa expense.

 

At 24x FY3/08 EPS, we find the share reasonably priced and hence maintain our OUTPERFORM rating. Our target price remains unchanged at Rs 2675. Our EPS numbers have come down by 3-4% on the back of the higher share count.

 

In the near term (3-4 months), we believe that the share performance could remain lacklustre due to weak 4Q. This could lead to better performance by other Indian IT stocks in that period. We continue to prefer Satyam as our top pick in Indian IT space.