Infosys outlook looking good; eye 8-10% sales growth: Cowen

Shares of software major Infosys jumped 15 percent on better-than-expected Q1 result on Friday. Speaking to CNBC-TV18, Moshe Katri, MD, Cowen & Co says Infosys has fared well on most parameters.  

"We have top-line growth roughly about 8-10 percent for FY14. We are looking for earnings to be up relatively 5-6 percent so there will be some sort of a margin dilution impact," he says. He believes the fundamentals for Infosys are looking pretty decent. Below is the verbatim transcript of Moshe Katri's interview on CNBC-TV18 Q: Dollar revenue growth at 2.7 percent, looks better than street expectations. Are you happy with these numbers? A: Ahead of this quarter, investors were focused on a couple of things. They were looking for revenue stability. We were hoping for some guidance reiteration and that is exactly what we got. Also, we are focused on the metrics such as new client addition and the margin. The delivery in all these metrics is a bit better than expected. So, this is definitely a step in the right direction in terms of where they are going and we will see good growth from here.

Q: Due to small beat on the dollar revenue performance this quarter, will analysts increase their expectations on dollar revenue performance for the entire year? Do you think there is still caution and they will work with the 6-10 percent band as the expectations? A: From a demand perspective, we just issued our mid-year quarterly survey. The second half looks pretty decent for the industry. We are looking at financial services which is going through a flattening spending cycle. We are looking for verticals with decent retail factoring, continental Europe is doing relatively okay. So, if Infosys continues to execute the number, dollar revenue numbers could potentially exceed 10 percent top line growth at the higher end of their guidance. We will see where it goes but again the fundamentals for this group are looking pretty decent. It will be important to see if the management talks about whether they are worried about the fall out from the negotiation reform, at this point, there are no plans of shifting business away from the India centric to some of the US centric firms and that is really important. So, we are in a pretty decent shape.

Q: What kind of ADS expectations would you have from it because people are now trying to workout whether or not they should up earnings per share (EPS) expectations of the domestic listed stocks? A: We have top-line growth roughly about 8-8.5 percent for FY14. We are looking for earnings to be up relatively 5-6 percent, so there will be some sort of a margin dilution impact. They hinted to the fact that margins will be under pressure in the coming quarters because of wage hikes and that's the biggest delta here. The new management team is reinvesting in the business. We clearly have to factor the impact of dilution from the acquisition that they have done in Europe. The other thing that we have to factor is the potential impact from sub-contractor costs has also been increasing. So, a bit better than mid-single digit EPS growth and probably maybe a bit better than 10 percent topline growth for this year.