Moneycontrol Bureau
Credit Suisse has retained its neutral rating on Infosys despite the IT major’s better-than-expected third quarter numbers. The brokerage prefers HCL Tech and TCS, which are more attractively valued, in comparison. Here are three reasons why Credit Suisse is not convinced about Infosys being a good play on the sector (extracts from its report): 1. The company has reduced its margin guidance. With just one more quarter to go, it now expects EBIT margin to contract by about 250 basis points year-on-year in FY13 versus its earlier guidance of a 200 basis points contraction. This is despite the INR depreciation benefit over 3Q and 4Q that should have aided full-year margins. 2. Reported volume growth was 2% quarter-on-quarter. Excluding Lodestone, it was 1.5% QoQ. This low number raises doubts on the sustainability of the revenue growth in 3Q. On the other hand, given the increasing proportion of fixed price projects, the relevance of volume growth as an operational metric has been declining. 3. Any pick-up in IT spending in 2013 will drive estimates upwards and likely re-rate the stocks somewhat. Infosys could be best leveraged given its large bench and exposure to discretionary projects. However, organisational uncertainties and increasing flexibility in deal constructs prevent us from getting constructive. Related Links: Infosys market cap jumps by $4 bn, more than Fiji GDPIT can be good bet for 2013 if Re weakens further: Expert
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