Upgraded Infy FY07 EPS to Rs 70: Karvy

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Upgraded Infy FY07 EPS to Rs 70: Karvy

Karvy Stock Broking has upgraded Infosys' FY07 EPS from Rs 66.5 per share to Rs 70 per share and has given a price target of Rs 2500 by March 07, if the rupee remains stable.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ News and Notices about Infosys See interviews with Infosys Management See what other Experts & Brokerages are saying about Infosys See previous Results of Infosys Infosys BSE | NSE 25/05/12 Are Mutual Funds betting on Infosys?

Karvy Stock Broking has upgraded Infosys ' FY07 EPS from Rs 66.5 per share to Rs 70 per share and has given a price target of Rs 2500 by March 07, if the rupee remains stable.

Discussing the Infosys results, R Ravi of Karvy Stock Broking says that margins growth of 240 bps has been above expectations of 80 bps growth. The revenue growth of over 14% is also above expectations of 12%.

He further adds that billing and utilisation rates and better cost management have helped the company's margins. Onshore and offshore businesses have also shown more than 1% growth, he says.

So offshore-onsite billing rates that are on a rise, along with improving utilization rates are two positives for the company going forward. Infosys will also gain from operating leverage in coming quarters, he says.

Excerpts from CNBC-TV18's interview with R Ravi of Karvy Stock Broking:

A: The pleasant surprise has been the revenue growth, which has been stronger than what was estimated. I had estimated 10% growth, which turned out to be more than 14%. In terms of margin expansion, I was building on around 80 bps, while they have done around 240 bps, which again is significantly higher. The company is ideally poised for an operating leverage to play out.

A: I think there is a client churn happening within their top 50 clients. Also, if one looks at the USD 10 million segment, it has gone up from 56 in the previous quarter to 61. In the USD 70 million category, it has gone up from 3 to 6. This means the addition has been quite strong and is growing at a faster pace.

Now this augurs well because these new clients would not be as hesitant as the previous ones in giving the billing rate revisions. So you are getting an offshore-onsite billing rate increase of close to 1-1.5%, which is what has actually led to this massive trigger in revenue growth.

It is a classic operating leverage and we have always seen revenues growing via volumes. It is only a matter of time and if the billing rates move up, then the revenue growth, in excess of 10% will directly go to the bottomline. That is what leads to the margin expansion of more than 200 bps, as we have seen in Q2.

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