Hold Infosys; target of Rs 2781: KRChoksey

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Hold Infosys; target of Rs 2781: KRChoksey

KRChoksey has recommended hold rating on Infosys with a target of Rs 2781, in its January 12, 2012 research report.

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KRChoksey has recommended hold rating on Infosys with a target of Rs 2781, in its January 12, 2012 research report.

"Overall financial performance in Q3FY12 was more or less in line with our expectation. However, the flat revenue growth guidance (in USD terms) for Q4FY12 came as a negative surprise especially after considering implied guidance of 3%-5.4% (in USD terms) for Q4FY12E given by the management at the end of Q2FY12. We believe deterioration in demand environment witnessed by the company for discretionary type of projects in the span of last 3 months is primary reason for downward revision of revenue growth expectation in Q4FY12E. Taking the same into account and the company's relatively higher dependence on discretionary projects, we expect Infosys to report relatively lower volume growth in near term compared to peer sets (especially TCS, HCL Tech and Cognizant) and hence we maintain our "HOLD" recommendation on the stock."

"Volume growth of 3.1% QoQ was lower than our expectation of 4.5% QoQ; however increase in blended billing rate by 1.3% against our expectation of stable rate (excluding adverse cross currency impact) led revenue growth of 4.4% (in constant currency terms) in line with our expectation. Provision for client support and doubtful accounts increased by Rs.75 crore QoQ in Q3FY12; adjusting for the same EBIT margin increased by 382 bps QoQ to 32% in Q3FY12 against our expectation of 32.1%. The increase in EBIT margin was primarily led by INR depreciation against USD by 11% QoQ (contributed around 400 bps to margins) in Q3FY12. The company is witnessing slow-down in decision making as well as slower ramp-up by the clients especially in case of discretionary projects. Hence, the company expects almost flat revenue growth (in USD terms) QoQ in Q4FY12. We believe, significant slowdown in revenue in near term is Infosys specific issue, as it has relatively higher dependence on these projects for its incremental revenue growth."

"We believe today's correction in price has factored into near term slower growth than peer sets (especially TCS, HCL Tech and Cognizant) and hence we maintain our 'HOLD' recommendation on the stock with a price target of Rs 2781 by assigning multiple of 17 times (in line with our expectation of around 17% earning CAGR from FY11 to FY13E) to its FY13E EPS of Rs.163.6," says KRChoksey research report. 

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