Hold Infosys; target of Rs 2438: Nirmal Bang

Nirmal Bang has recommended hold rating on Infosys with a target of Rs 2438, in its April 13, 2012 research report.

“Infosys’ 4QFY12 dollar revenues and 1QFY13 as well as FY13 guidance, all of which were below expectations, suggest the environment has worsened as clients ramped down engagements on rising macro-economic uncertainty. Consequently, the stock took a 12.6% battering on the bourses. In our view, the key question is whether Infosys’ poor guidance for FY13 is company-specific or an industry-wide trend. At this point, the jury is still out on this issue, which will be addressed over the next few days as other information technology (IT) firms announce their results. As regards Infosys, we slash our FY13 revenue, EBITDA and EPS estimates by 7.7%, 12.6% and 11.6%, respectively, owing to reduction in volume growth estimates. We also downgrade the PE multiple we assign to the stock to 15x (17x earlier) and thereby downgrade our target price to Rs2,438 (Rs3,125 earlier) even as we retain our Hold rating on the stock.”

“Infosys reported a 4.8% QoQ decline in revenue to Rs88.5bn (our estimate Rs91.1bn, consensus Rs92bn); in dollar terms revenues were US$1,771mn, well below our estimate of US$1,812mn, with volumes falling 0.5% QoQ (our estimate 0.9% QoQ growth) and billing rates falling 1.4% QoQ (our estimate 0.6% QoQ decline). The IT major’s key vertical - Financial Services and Insurance (FSI) – showed a decline of 4.7% QoQ, which is a disconcerting sign. Unexpected client rampdowns towards the end of the quarter led to the volume, pricing and revenue miss. The IT major missed its own revenue guidance of US$1,806-1,810mn by a significant margin. Infosys reported a 107bps QoQ fall in EBITDA margins to 32.6% (below our estimate by 71bps, below consensus estimates by 41bps) on lower capacity utilisation (70.7% including trainees, 76.4% in 3QFY12). This led to a 2.4% QoQ fall in net profit to Rs23.2bn, in line with our estimate but higher than consensus estimates by 0.6%.”

“Infosys has guided for FY13 dollar revenue growth of just 8-10% and 1QFY13 growth of 0-1% QoQ. Whether the cautious FY13 outlook is company-specific or industry-wide remains to be seen and this will be addressed over the next few days. As regards Infosys, we downgrade our FY13 revenue, EBITDA and EPS estimates by 7.7%, 12.6% and 11.6%, respectively, downgrade the PE multiple to 15x (17x) and also cut our target price to Rs 2438 (Rs3,125) even as we maintain Hold rating on the stock,” says Nirmal Bang research report.  

Public holding more than 90% in Indian cos  

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