Buy Infosys; target of Rs 2770: Dolat Capital

“Infosys witnessed a sharp cut of 3.2% in its blended pricing (6 quarter low) owing to adverse portfolio mix with 5% QoQ fall in Consulting and SI revenues and few sporadic cuts offered to clients in the BFSI segment. Pricing cut completely negated gains of volumes growth (up 2.7% QoQ) and 10% ` depreciation (tailwind of about 400bps); leading to disappointing growth in PAT.”

“Management has build in sustained decline in pricing and has restated annual guidance of 6% growth in the constant currency terms which translates a 9% volume growth assumption for FY13, inline with guidance band at the beginning of the year. Sustained outlook on volume growth is encouraging but entails a risk of disappointment in coming quarters as it implies a 3.1% QoQ growth over next 3 quarters. Also, discontinuation of quarterly guidance highlights uncertainty in predictability. Infy witnessed 7% jump in receivables in USD terms (15% in ` terms) QoQ; taking the total DSO to 89 days (78 days in Q1FY12). It also had a major shift in its Investments- allocated about ` 25bn in MF and Govt bonds. We have cut our FY13 USD Revenue estimates by 4% but retains our EPS outlook owing to higher Fx reset. Maintain BUY and sector underperformer on the stock,” says Dolat Capital research report.   

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