Accumulate Infosys; target Rs 3000: Way2Wealth

"Infosys, after two-three quarters of slack performance, reported a comeback quarter in Q3FY13 and also surprised the street with better than expected numbers. Including Loadstone, USD term revenue grew by 6.34% sequentially backed by 2.69% of volume growth and 3.56% of average realization improvement. Even organically Infosys’s topline grew by 4.17% backed by 1.5% of volume growth and 1.8% of realization improvement. Growth is visible across the verticals and service lines.

Cost related to Loadstone acquisition and wage hike to offshore employees put margin under pressure. EBIT margin reported 66bps de-growth sequentially to 25.68%. Although, organically EBIT margin in the previous quarter was 26.10% which was 33bps lower than the previous quarter. Net margin was also under pressure due to lower other income and higher hedging related loss.

In Q3FY13, Infosys reported balanced growth across the service line and the product business. Infrastructure Management reported 7.91% of sequential growth, Business Validation reported 3.87% sequential growth, and BPO reported whopping 17.66% QoQ growth. Consecutive two quarters of impressive growth in IMS, last quarter’s good growth in ADM and this quarters remarkable performance in BPO is directing us to believe that management is now more focusing towards creating a balanced business of both traditional and new business lines and this is how exactly we have expected Infosys management to react in the changed and slower business growth scenario. Most importantly, Consultancy & System Integration Business and Product & Platform business also reported excellent growth in tough demand condition and that shows management are in right track to create organization of the future.

Infosys’s growth is well spread across main verticals. BFSI, after three quarters of soft performance reported 6.34% growth sequentially. Telecom, again after three quarters of soft growth, reported 3.65% sequential growth mainly backed by pick up in BPO business. Manufacturing, according our expectation, continuously performing well for Infosys.

Infosys stock price has positively reacted by almost 21% in the last two trading sessions as the company reported better than expected result after a long time. At CMP of Rs 2800, the stock is trading at 15x of FY14E EPS of Rs 185.96. We believe, the company has shown improvement in most of its operating metrics which give us confidence to remain our ACCUMULATE ratings on the stock with a target price of Rs 3000 after discounting FY14E EPS by 16x," says Way2Wealth research report.

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