Infosys likely to achieve 12% growth in FY14: Kotak Instl

Kawaljeet Saluja, ED and head of research, Kotak Institutional Equities expects Infosys to acheive 12 percent growth in FY14 given the number of deals it has bagged in the business operation segment.

In an interview to CNBC-TV18, Saluja says the margins of the company are likely to improve going ahead. Infosys had given a wage hike in this quarter and that will get absorbed over the next two-three quarters. Also, it did a lot of cost rationalisation and the benefits of that will start showing up in the December quarter, he elaborated.

Also Read: Infosys Q2 net up 1.5%, ups FY14 guidance to 9-10%

Below is the verbatim transcript of Kawaljeet Saluja’s interview on CNBC-TV18

Q: Any incremental information that you have picked up from Infosys that would give us a sense of what guidance we should truly expect as opposed to the conservative line the company has taken?

A: The company had a good number of deal wins in the business operations side. This is an area where this company has lagged in the past. Based on the deal wins and the kind of pipeline they have, I think a growth of 12 percent for FY14 looks achievable. The guidance that they have given out despite the revenue decline over the next two quarters, I don’t know whether one should take that seriously or not.

Q: Have you come out with new price estimates for Infosys?

A: We are still working on it, but our ballpark estimates could be around Rs 185 for FY14 and maybe in a range of Rs 215-220, though we are yet to free that estimate.

Q: Infosys has been lagging its peers now for the past many quarters. Would you extrapolate today's optimism to the whole industry or would you say this is just Infosys catching up? We still cannot make out how the others are going to do?

A: It is indisputable that the demand environment has improved and there have been a lot of deal closures not only for Infosys, but for a lot of players in the industry. Infosys was missing out business operations deals, deals in the infrastructure management space and that is something which they have focused on quite aggressively over the last four quarters and whatever efforts they have made in this area are showing up in performance now. So, it is a mix of both. What you would see is a good performance from other IT companies as well.

Q: What is your take on margins because on one hand we have the company talking about cost rationalisation, on the other hand they said the focus from here onwards is going to be on investments and not necessarily profitability. Do you believe margins have bottomed out or do you think that they will continue to be flat for the next couple of quarters?

A: The underlying profitability would improve no doubt. In this quarter the company has taken wage increase. The wage increase will get absorbed over the next two-three quarters and so, there will be an automatic bump up on margins. On top of that, the company has done a lot of cost rationalisation, the benefits of that will start showing up in December quarter. So, the underlying margins will improve. How much will flow through is a function of the reinvestment plan of the company but taking a look at it in totality one can assume that the margins should trend up a bit though not by whole – its should trend up a bit and the big expansion may happen in FY15.