Way2Wealth has recommended hold rating on Infosys with a target of Rs 2500, in its April 18, 2013 research report.
“Infosys reported a weak quarter and has put to rest the hopes of a possible turnaround that were stoked by a better than expected Q3FY12 quarterly performance. Including Loadstone, USD term revenue grew by 1.41 percent sequentially and excluding that acquisition, organic revenue grew by only 0.8 percent QoQ. Overall volume growth came in at 1.57 percent QoQ while overall pricing declined by 0.16 percent sequentially.”
“Cost related to Loadstone acquisition, wage hike to onsite employees and stress on realization put margin under pressure. The company’s EBIT margin declined by 213bp QoQ to 23.55 percent. EBIT Margin continued to fall for 5 consecutive quarters from 31.18 percent in Q3FY12 to 23.55 percent in Q4FY13, despite INR has depreciated by 500bps against USD during the same period. Infosys added 8,990 gross employees in QFY13, of which 3,545 were lateral additions. The net addition number for the quarter stood at 1,059. Attrition went up considerably to 16.3 percent in Q4FY13 from 15.1 percent in Q3FY13. Among the 35000 people offered last year, the company is yet to take 10000 people on board and they are expected to join the company in the next quarter. From here on the company’s hiring will be demand based as the current utilization level is very low at 70.10 percent. The company is trying to inch up its utilization level going forward, which could act as one of the margin levers.”
“Infosys added 56 new clients in Q4FY13. Management also indicated 5 joint deal wins with Loadstone. The company experienced deal wins of USD960mn in the last two quarters. TCV in the PPS business also remain strong at USD685mn against USD600mn in Q3FY13. Infosys management indicated better deal pipeline as compared to the same time previous year and company’s win ratio has also improved marginally. Infosys management expressed concern about the challenging macro environment around the globe. The company is still facing decision delay and longer deals closer cycle which may affect short term growth of the company. Discretionary spending is still under pressure and clients are taking short term decisions. But, ramp up of some recently won deals provide some support to the company’s topline performance in the near future and management is very confident on the company’s overall direction and progress towards future growth.”
“Infosys stock has corrected by more than 20 percent on lower than expected result and lower FY14 guidance. At CMP of Rs2330, the stock is trading at 13x of FY14E EPS of Rs170. We believe, the company will continue to face challenges in the short run and that may cap the upside potential in prices and simultaneously the huge reaction in prices may leave less potential for further downside. We are recommending HOLD with a target price of Rs2500 in the medium to long term,” says Way2Wealth research report.
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