Hold Infosys; target of Rs 2349: KRChoksey
KRChoksey has recommended hold rating on Infosys with a target of Rs 2349, in its April 15, 2013 research report.
April 26, 2013 / 19:27 IST
KRChoksey has recommended hold rating on Infosys with a target of Rs 2349, in its April 15, 2013 research report.
"Infosys, the underperformance by USD 50 mn at revenue growth front in Q4 as compared to our and street estimates as well as its own implied guidance is led by three factors (a) Adverse cross currency movement had an impact of 40 bps QoQ on revenue i.e. ~8 mn; (b) Reversal of Lodestone revenue to the extent of USD 14 mn due to onetime adjustment on account of different revenue booking policy; and (c) Slower than expected deals ramp-up especially in discretionary areas led lower than expected revenue to the extent of around USD 28 mn in Q4 FY13.EBITDA margins declined by ~200 bps QoQ in Q4 FY13 against our expectation of 90 bps QoQ decrease in margins (primarily on account of onsite wage hike w.e.f. February 2013). Higher than expected dip in EBITDA margins is led by following factors (a) Higher than expected adverse cross currency movement; (b) Reversal of Lodestone revenue had an impact of around 50 bps on margins; and (c) Dip in onsite and offshore IT Services billing rate by 1.8 percent QoQ and 1.5 percent QoQ, respectively.Inspite one time impact of 50 bps on account of reversal of Lodestone revenue in Q4 FY13; we believe EBITDA margins is likely to continue to be under pressure in Q1 FY14E led by one month impact of onsite wage hike (around 40 bps QoQ) and visa filing fee which is primarily incurred in the first quarter (around 50 bps QoQ).The company has given dismal annual revenue guidance (6 percent to 10 percent growth which implies 0.5 percent to 2 percent CQGR in FY14E), after missing its implied revenue guidance in Q4 FY13. We believe, the slower growth guidance reflects fact that Infosys is facing the company specific issues as it is expecting relatively slower growth in the largest segment i.e. BFSI. For instance, the management commented in concall that “In financial sector, the appetite for spending money was much higher 12 months ago compared to cost-conscious environment today”. Whereas peer sets such as TCS are not witnessing any major challenges in respect of spending on IT by BFSI clients.The company has temporarily stopped giving annual Margin/ EPS guidance because of two apparent reasons (a) The management has not decided yet about quantum and timing of wage hike, which they are likely to decide based on market factors; and (b) The wide range of revenue growth guidance indicates lack of clarity about impact of delays in deals ramp-up, which in turn leads to ambiguity about employees’ utilization rate in FY14E- one of the key margin determinants.Valuation and view: Considering disappointment in Q4 FY13 and subdued guidance indicates that Q3 FY13 was an aberration and there is no material improvement in competitive position of Infosys as compared to peer sets (especially Cognizant and TCS). Taking the same into account, we maintain our ‘HOLD’ recommendation on the stock with a price target of Rs.2,349 by assigning multiple of 14.5 times (20 percent discount to TCS target P/E multiple)to its FY14E EPS of Rs 163.1," says KRChoksey research report.Institutional holding more than 40% in Indian cosDisclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. 
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