Buy Infosys; target of Rs 3225: Motilal Oswal

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Buy Infosys; target of Rs 3225: Motilal Oswal

Motilal Oswal is bullish on Infosys and has recommended buy rating on the stock with a target of Rs 3225 in its January 12, 2012 research report.

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Motilal Oswal is bullish on Infosys and has recommended buy rating on the stock with a target of Rs 3225 in its January 12, 2012 research report.

"Infosys is the second largest IT Services Company in India with revenues of around US $6.0b and employing over 145,000 people. Infosys defines designs and delivers IT enabled business solutions that help many Global 2000 companies to win in a flat world. Infosys has a global footprint in 23 countries and development centers in India, China, Australia, the UK, Canada and Japan. Company's service offerings span business and technology consulting, ADM, SI, product engineering, IT infrastructure services and BPO."

"Infosys' headline numbers for 3QFY12 were ahead of estimates. However the outperformance was largely driven by a weaker than expected INR realization, which boosted both revenues and margins. Europe, which grew 14% QoQ, was the biggest contributor during the quarter accounting for 84% of the incremental revenue. From a vertical perspective, Manufacturing grew 4.8% QoQ and accounted for 26% of incremental revenues; while ADM and Products drove the revenues among horizontals. Key disappointments were Telecom, which declined 2.5% QoQ and revenues from top customer, which was down 8% QoQ. 11% QoQ depreciation of the INR was a key tailwind for margins, which had a 440bp positive impact. 140bp increase in operating costs limited the EBIT margin expansion to 300bp QoQ. Hedge losses were also lower at INR200m v/s our expectation of INR600m."

"Management commentary indicates a slowdown in discretionary spends, delay in decision making and ramp up of new projects. This is also clearly visible in Infosys' portfolio with consulting and PI growing by 1.4% QoQ (lower than company growth). Infosys added 49 new clients during the quarter - the highest in over 14 quarters; the company also won 5 large deals - 2 with a TCV > USD500m. We maintain our P/E multiple of 20x on the stock despite the deterioration as we will rollover our estimates to FY14 next quarter. We reiterate our Buy rating with a target price of INR 3225," says Motilal Oswal research report.    

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