In an interview to CNBC-TV18, Sarabjit Kaur Nangra, VP – Research, Angel Broking shares her views on Infosys’ better-than-expected results and her recommendation on the stock.
According to her, the improved EBIT margins and optimistic management commentary is a huge positive. However, attrition rate still remains a concern. She recommends buying the stock now with a target price of Rs 4470.
Below is verbatim transcript of the interview:
Q: What is your call on Infosys and what was the one key parameter that stood out as the biggest positive and one as a biggest negative?
A: The numbers have been positive. Better-than-expected marginally though, the main positive that possibly you can take away from the numbers is operating front. They have improved the EBIT margins significantly. So the operating margin coming in higher- than-expected was a key.
In terms of negative, the key metrics point, is attrition, which though has not risen significantly but is still higher than the last quarter and stands around 20.1 vis-à-vis 19.5 in the last quarter.
It is not significant alarming factor as of now given that the company is in a transition phase wherein it wants to align back to its strategy of consistent growth and profitability going forward as indicated by the commentary of the management. Therefore, it is a matter of time. We are not looking at these numbers in detail and are very positive in terms of the commentary that has come in.
The positive is that the management is aligning towards getting back Infosys to the status that it enjoyed earlier which is that it is a bellwether company and they will focus on a sustainable visible growth and profitability. So that is a major positive coming out of these numbers and the management commentary.
Q: With 6 percent rise in stock price today at Rs 3,870, what is your call on the stock and do you think it can outperform from hereon?
A: Our main call on Infosys for quite some time has been that it has to outperform going forward. The main reason for that is that Infosys is a blue-chip company and any fundamental analyst will agree that a blue-chip company has to be bought at times when it is not doing that great.
Since it lived up to its name thousand times, I think this stock has outperformed and come out of its bad time significantly many times earlier as well. We are confident that the company will come out of it and this is not something new.
We have seen in the case of Tata Consultancy Services (TCS) also when it was not performing or performing below industry peers, the stock was not getting that kind of a valuations even though it was the largest IT company.
I think it is a matter of time, markets are currently looking at growth numbers but even if you conservatively take a 10 percent growth for this year and next year also and profitability levels to be around here also that the stock is 15 times next year earnings which is very cheap. If you look at the commentary that the company has been giving, the company can easily sustain a growth of 15-18 percent. Since I also track pharmaceutical sector I can tell you that a company which will sustain a growth of 15-18 percent and a large blue-chip company trading at 15 times is quite cheap company given the profitability and other parameters.
Hence, it is the right time to get into the stock and we have been fairly positive on this stock and have a buy recommendation, we have upgraded the target to around Rs 4,700 for the stock. I believe that a long-term investor should not miss this opportunity to get into the stock.
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