Hold Infosys; target of Rs 2950: Unicon Investment

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Hold Infosys; target of Rs 2950: Unicon Investment

Unicon Investment has recommended hold rating on Infosys with a target of Rs 2950, in its January 12, 2012 research report.

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Unicon Investment has recommended hold rating on Infosys with a target of Rs 2950, in its January 12, 2012 research report.

"Infosys Ltd. (Infosys) has kicked off the IT results with a good set of numbers for Q3FY12. The top line and bottom line were both above our quarterly estimates and beat street estimates as well. The company revised its dollar revenue growth forecast for the full year ending March 2012 to 16.4% from 17.1-19.1%"

"For Q3FY12, Infosys reported revenue at INR 92.98 bn was up 31% and 15% on YoY and QoQ basis respectively. Operating profit for the quarter stood at INR 28.99 bn, up 35% and 27% YoY and QoQ respectively. The weakening of the INR increased the operating margins by ~140bps for this quarter. Infosys added 49 new clients in Q3FY12, which is a decent increase for the quarter, as the second half of the year is generally slower in the IT space. The company added two USD 500 mn + clients in the quarter and 14 new accounts in Europe primarily in the manufacturing, retail and financial services verticals. The total client base of the company stood at 665. The onsite - offshore revenue mix was 49.5:50.5 while onsite - offshore employee effort stood around 25:75. The company added 3,266 employees (net) in this quarter. As on 31st December 2011, the total number of employees stood at 1, 45,088."

"Infosys has downgraded its dollar revenue growth guidance for FY12 from 17.1-19% (at the start of Q3FY12) to 16.4%. The EPS growth has also been pegged back from 15.3- 16.8% (start of Q3FY12) to 14.5%. The rupee revenue and guidance has been increased marginally to 24.6-24.7% from 21.8-24% and EPS guidance has been increased to 23.2% from 19.7-21.6%, mainly on account of depreciation of INR to the extent of 11% this quarter. Infosys will focus on high quality growth without compromising on its operating margins and thereby increase its market share. The company has increased prices by ~6% over the last 9 months and will continue to do so as they are in a leadership position in terms of quality and delivery."

"With the economic situation in US and specifically Europe still in a precarious position, the company has adopted a very cautious stance in its guidance for the quarter ahead, where it has given a revenue growth guidance of 0-0.2% for the next quarter. Delays in project ramp-ups along with slowing down in decision making have led to a lack of order visibility. Client IT budgets for the year are expected to be finalized by the middle of February, post which there would be clarity on client spending. We believe that budgets should remain flat or marginally lower. The slowdown in Europe may provide off shoring opportunities that the company could exploit due to their leadership position. At CMP the stock trades at 15.5x FY13E earnings, due to the guidance revision by the company, we are revising our price target downwards to INR 2950 and maintain a HOLD rating on the stock," says Unicon Investment research report.

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