Prabhudas Lilladher is bullish on Infosys and has recommended buy rating on the stock with a target of Rs 3175 in its April 1, 2013 research report.
“Infosys witnessed 584bp and 522bp margin decline at Gross Margin and EBITDA Margin level over the last 4 quarters. The sharp decline in margin, despite currency support, raised the doubt on Infosys’ ability to maintain margin and its premium pricing. The pricing pressure and drop in utilization resulted in margin pressure over the last 4 quarters. But, we believe bulk of the decline is already captured.”
“EBITDA margin decline of 522bp over the last 4 quarters could be attributed to realization/productivity (overall) decline of 5pp over the last 4 quarters. Our channel check indicates that Infosys’ adopted aggressive S&M (.Pricing . What it means for volume growth?., July 18, 2012) approach in CY12, which is already captured in the margin profile of the company. Infosys is reaching tail-end of the discount given to its clients. We envisage a very limited impact left to be reflected in EBITDA margin. The management has been investing in PPS (revs: 5.5 percent) to drive nonlinearity. Due to smaller size the performances likely to be volatile, but increased focus would drive the momentum. Infosys bagged 3 new patents and launched new big-data solution in Q4FY13. We expect PPS’ growth to help withstand margin pressure in near term (if any). The utilization level for Infosys is at record low. As Infosys regain volume momentum in CY13, we expect utilization to increase 5- 6pp. Moreover, the company currently has 12k fresher joining in the pipeline. We anticipate stronger volume growth in CY13 to help rationalize the pyramid, which got impacted in CY12 due to weaker revenue momentum.”
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