Sushil Finance is bullish on Infosys and has recommended buy rating on the stock with a target price of Rs 2780 in its April 17, 2013 research report.
“Infosys, Q4FY13 performance was a big disappointment given the positive comments from management about business outlook post its Q3FY13 results. During Q4FY13, its USD Revenue grew 1.4 percent QoQ to 1,938 mn which was much lower than its guidance (1,988 mn) & our estimates of 1,995 mn. Excluding USD 70.3 mn contribution of Lodestone, its organic Revenues in USD term was down 0.2 percent QoQ, while in constant currency its Revenues grew by 1.7 percent QoQ (0.6 percent QoQ excl. Lodestone). The QoQ growth in constant currency was led by 1.8 percent QoQ volume growth which was partially mitigated by 0.7 percent QoQ price decline. INR Revenues grew by 0.3 percent QoQ to Rs. 104,540 mn. The muted revenue growth was attributed to the slower than expected ramp-ups in projects along with pricing decline despite large transformational deal wins during H2FY13.”
“Its EBIT for Q4FY13 decreased 8 percent QoQ to Rs. 24,620 mn, while the EBIT margins fell 210 bps QoQ to 23.6 percent, which was a 5th successive QoQ fall. The quarterly EBIT margins was also at the lowest level in last 10 years clearly indicating that Infosys is no longer commands a premium pricing to its peers as the current environment is much more challenging with muted IT spending growth outlook and intensifying competition among IT vendors. The fall in EBIT margins can be attributed to (i) onsite wage increment effective from 1st Jan’13; (ii) full integration of low margin Lodestone’s business and (iii) strengthening of Rupee. However, it managed to grow its APAT by 1.1 percent to Rs. 23,940 mn, mainly on account of sharp 34 percent QoQ rise in other income (Rs.6,740 mn), and lower tax provisioning (23.7 percent of PBT) on benefits from R&D expenses. Due to slower than anticipated project ramp-ups, low utilization and declining pricing environment, the management expects its EBIT margins to remain under pressure in near term. Considering these factors, we expect Infosys to deliver 23.5 percent EBIT margins in FY14 vs. 25.8 percent in FY13.”
“The USD Revenue growth guidance of 6-10 percent was a distant below Nasscom’ guidance of 12-14 percent and was also lower than our expectations of 10-12 percent. Additionally, the management abstained from providing any EPS guidance due to volatile business & pricing environment. Despite significant large deal wins of TCV USD 960 mn during H1FY13, the company is witnessing slower ramp‐ups and pricing pressure which has restricted its ability to anticipate longer term growth & earnings. The management expects clients’ IT budget to be flat or marginally negative in CY13. In our view, Infosys is likely to achieve its FY14 Dollar Revenue guidance which is subdued considering full year Revenue contribution of Lodestone. However, we expect about 1 percent decline in its FY14 earnings considering its slower growth outlook and lower EBIT margins.”
“Considering its FY13 performance and FY14E guidance, we have downgraded our FY14E INR Revenue & earnings estimates by 2.9 percent & 6.6 percent respectively. We have also introduced our FY15E estimates. Going forward, we expect its FY14E & FY15E Revenues to grow by 9.6 percent & 11 percent respectively, while expect its APAT to decrease by 0.9 percent in FY14E & grow by 13.6 percent in FY15E. We have assigned a valuation multiple of 15x its FY15E earnings (~15 percent discount to its historical average forward P/E). The CMP of Rs. 2,296 discounts its FY14E & FY15E Earnings of Rs.163.1 & Rs.185.3 by 14.1x & 12.4x respectively. We change our rating to ‘BUY’ on the stock with price target of Rs. 2780,” says Sushil Finance research report.
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