Jan 16, 2013, 12.33 PM | Source: Moneycontrol.com
Sushil Finance has recommended hold rating on Infosys with a target price of Rs 2,881, in its January 15, 2013 research report.
, Sushil Finance |
The quarterly performance of Infosys was slightly ahead of the expectations of street. During Q3FY13, its USD Revenue at 1,911 mn was better than our estimates of 1,875 mn. Driven by strong growth in consulting & SI biz and USD 39 mn contribution of Lodestone, its USD Revenues grew 6.3% QoQ, while in constant currency its Revenues grew by 5.8% QoQ (3.8% QoQ excl. Lodestone). The QoQ growth in constant currency was led by 1.5% QoQ volume growth and 1.8% QoQ price increase. INR Revenues grew by 5.7% QoQ to Rs. 104,240 mn.
Its EBIT for Q3FY13 grew 3.1% QoQ to Rs. 26,770 mn, while the EBIT margins fell 65 bps QoQ to 25.7%. The fall in EBIT margins can be attributed to offshore wage increment and strengthening of Rupee, which was partially offset by 1.8% price increase. On account of sharp 28.8% QoQ fall in other income (Rs. 5,030 mn), its PBT decreased by 3.7% QoQ to Rs. 31,800 mn, while due to lower tax provisioning (25.5% of PBT), its APAT remained flat at Rs. 23,690 mn. The management expects 1.3% drop in EBIT margins in Q4, mainly due to 2.5 % onsite wage increment effective from 1st Jan’13 and full integration of low margin Lodestone’s business. With stable pricing environment and impact of wage increase, we expect its EBIT margin to fall ~120 bps in Q4FY13.
Despite challenging business environment during Q3FY13, Infosys managed to win 8 large deals of TCV USD 731 mn and added 53 new clients. The management expects clients’ IT budget to be flat or marginally negative in CY13. However, based on its current business visibility, it maintained its organic USD growth guidance for FY13 at 5%. The growth is likely to be 6.5% including USD 104 mn contribution from Lodestone. Given the INR/USD rate at 54.5, it has upgraded its FY13 Rupee EPS guidance to 162.8 from 160.6. Considering its 9MFY13 performance, in our view, Infosys is likely to achieve its FY13 Dollar Revenue guidance and Rupee EPS guidance.
Infosys has strong balance sheet with low Debtor Days (62 days) and High Net Cash in excess of US$ 4.1 bn (Rs.225 bn) as on 31st Dec, 2012. The strong deal wins, 1.8% QoQ price improvement along with uptick in utilization during Q3FY13 resulted into decent financial performance. Going forward, we expect Infosys to maintain its growth momentum and better utilize its idle cash to improve return on investments. The street rewarded the shareholders with ~20% return in past two days post results on account of its decent Q3 performance and positive commentary though it remained cautious on clients’ budget & overall market outlook. The current valuation look attractive for long term perspective and further upside in the stock is possible only on consistency in its operational performance going forward and its ability to utilize its cash in acquisitions.
Based on its 9MFY13 performance and Lodestone’s FY13 expected contribution (USD 104 mn), we have slightly upgraded our FY13E & FY14E INR Revenue & earnings estimates. Going forward, we expect its FY13E & FY14E Revenues to grow by 20.6% & 12% to Rs. 406.8 bn & Rs. 455.4 bn respectively, while expect its APAT to increase by 12.1% & 7.2% to Rs. 93.2 bn & Rs. 99.9 bn in FY13E & FY14E respectively. Considering its FY13 growth guidance & its current business outlook, we have also upgraded our valuation multiple for Infosys to 16.5x its FY14 earnings (~10% discount to its historical average forward P/E). The CMP of Rs. 2,790 discounts its FY13E & FY14E Earnings of Rs. 162.9 & Rs.174.6 by 17.1x & 16x respectively. We maintain ‘Hold’ rating on the stock with increased price target of Rs. 2,881," says Sushil Finance research report.
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