Infosys an underperformer: Way2Wealth

Way2Wealth has recommended an underperformer rating on Infosys with a target of Rs 2400 in its July 18, 2012 research report.

"Infosys reported another quarter of weak overall performance and unexpectedly again missed their own revenue guidance. USD term topline degrew by 1.07% sequentially to $1752mn. According to the management, unexpected appreciation of USD again other global currency affected revenue by $13mn and a onetime write-off of the previously recognized unbilled revenue of $15mn (due to one transformation project cancellation from one European client) put reported revenue under pressure."

"Although, the company reported better than expected sequential volume growth of 2.80% in Q1FY13, pricing play the spoil spot as blended realization reduced by 3.77% sequentially. Weakness is visible across the vertical and service lines. Even the main focused services lines of Infosys3.0, like, Consulting and System Integration also de-grew sequentially."

"Based on the weaknesses and challenges articulated by the management about the short to medium-term difficulty and higher dependence on the discretionary spending, we believe, the target growth in the topline of atleast 5% would be difficult to achieve. We expect, USD term topline to report growth of 2.36% to $7158mn mainly backed by volume growth. Moreover, due to realization pressure, margins are also expected to remain subdued. We also expect the company to consider wage hike in near future to contain attrition which w9ould put further pressure on bottomline. EPS for FY13E is expected to achieve `161.19 against company guidance of Rs 166.46."

Valuation looks attractive; but no possibility of short term bounce back

"Infosys’ stock price corrected by more than 11% in the last two trading session. At CMP of Rs 2171 the stock is trading at 13x of our FY13 expected EPS of `161.19. Although, the valuation looks attractive in terms of its historical levels, but, we are not expecting any improvement in company’s overall performance in short to medium term. We downgrade the stock from Accumulate to Underperformer with a target price of Rs 2400," says Way2Wealth research report.

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