Buy Infosys; target of Rs 2940: PLilladher

Prabhudas Lilladher is bullish on Infosys and has recommended buy rating on the stock with a target of Rs 2940 in its April 24, 2012 research report.

“Infosys, knee-jerk reaction to Q4FY12 results pushed the Infosys stock to trough valuations. We believe that the current market price is factoring in most of the negative sentiments; however, it is not accounting for positives. Our “BUY” rating is based on five pillars.”

“Infosys’ management commentary for Q4FY12 was not entirely a company-specific problem. The cautious behaviour of client has pushed project ramp-ups across the vendors. Results from IBM and HCL Tech resonate well with Infosys’ commentary. Infosys added highest number of clients among the peers over the last four quarters. However, the quarterly performance didn’t add-up to the same. We expect ramp-up of projects from the client win to result in a positive surprise. Moreover, anaemic guidance for seasonally strong Q1 has further raised doubts about back-ended growth. But, 1-2pp beat due to project ramp-up could give further upside risk to consensus expectation. Top client’s ramp-down which troubled Infosys through H2FY11 are bottoming out. The consistent underperformance from top clients is reaching a nadir. We expect ramp-down to spill over in H1FY13. We are factoring 2% negative impact due to the same. Post Q4FY12 results consensus expectation came spiralling down by 3-4%. Moreover, consensus is factoring in margin dip despite multiple margin levers. We expect consensus upgrade post Q1FY13 results.”

“Infosys is currently trading at 12.1x FY14 earnings estimates, one of the lowest valuations that the company has witnessed since Lehman crisis. We are still not able to envisage a scenario similar to that. Moreover, the delay in project ramp-up will only create projects along the sidelines, which would start once there is more clarity on macrouncertainty. We reiterate “BUY” with a target price of Rs 2940,” says Prabhudas Lilladher research report. 

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