Hold Infosys; target of Rs 2474: KRChoksey

KRChoksey has recommended hold rating on Infosys with a target of Rs 2474, in its April 13, 2012 research report.

“Infosys missed revenue guidance (in USD terms) in Q4 FY12 for the first time since Q4 FY09, which came as a negative surprise especially considering that most of its clients indicated flat IT budget for CY12E and also most of them closed their budget on time. Moreover, the company’s revenue growth guidance of 8%-10% YoY in FY13E versus NASSCOM expectation that IT industry will register growth of 11%-14% in FY13E indicates that the company is facing internal issues rather than macro-economic challenges. Further, the company expects back ended growth, which leaves limited scope for the company to significantly outperform its revenue guidance (in USD terms). We believe, today’s correction partially reflects both stock de-rating as well as scale down in market estimation of FY13E EPS and hence there is limited scope for major run up from the current level in near term and hence we maintain our “HOLD” recommendation on the stock.”

“Volume de-growth of 1.5% QoQ came as negative surprise to us especially considering stabilization in macro environment in Q4 FY12 in both major markets i.e. US and Europe. Moreover, the dip in both onsite and offshore realization rate by 0.2% and 1.6% QoQ, respectively, is surprising especially considering increase in revenue share of value added services such as Consulting and Package Implementation in Q4 FY12. EBITDA margins declined by 107 bps QoQ to 32.6% in Q4 FY12 against our expectation of dip in margins by 66 bps QoQ in Q4 FY12. The higher than expected dip in margins was led by lower than expected volume growth leading to higher than estimated dip in utilization rate. The management has guided for back ended growth in FY13E i.e. around 4.1%- 4.8% CQGR from Q2 FY13E to Q4 FY13E to attain lower end and top end of revenue guidance for FY13E, respectively. This indicates it is facing the company specific issues rather than any industry related issues especially considering robust guidance of Cognizant (guidance of minimum 23% YoY revenue growth in FY13E in USD terms).”

“We believe today’s correction in price has factored into near term slower growth than peer sets (especially TCS, HCL Tech and Cognizant) and hence we maintain our ‘HOLD’ recommendation on the stock with a price target of Rs.2,474 by assigning multiple of 15 times to its FY13E EPS of Rs.164.9,” says KRChoksey research report.

Public holding more than 90% in Indian cos

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