Accumulate Infosys; target of Rs 2800: Emkay

Emkay Global Financial Services is bullish on Infosys and has recommended accumulate rating on the stock with a target of Rs 2800 in its April 13, 2012 research report.

“Infosys continued it’s streak of disappointment missing both our as well as street expectations with a 1.9% QoQ decline in rev at US$ 1,771 mn( guidance of US$ 1,802- 1,810 mn). IT Services vols declined by ~1.5% QoQ with constant currency pricing declining by ~1.5% QoQ. Profits at Rs 23.2 bn (-2.4% QoQ, +27.2% YoY) was in line with exp. despite operational miss aided by higher than expected other income. Infosys continued to report an anemic performance within top clients (top 1/10 clients declined by ~2%/2.3% QoQ) with rev declines led largely by fin svcs (-4.7% QoQ, rev from Fin Services declined by ~US$ 30 mn on a sequential basis, accounting for ~80% of decline in revenues). While qtrly client addition was strongest ever in the history at 52 with co adding ~12 Fortune 500 clients of which 5 from fin svcs), co indicated that it has won 3 large deals of US$ 100 mn+ TCV during the qtr. Mgmt attributed the rev/vols miss to ramp downs in some of the projects in US fin svcs clients during March’12 and delays in decisions making /slower ramp ups on some of the projects won earlier.”

“Infosys has guided for revenues of US$ 7,553 mn-7,692 (8-10% growth) implying a 4.3- 4.8% CQGR through Q2-Q4FY12 based on 0-1% growth outlook for June’12 qtr. Although overall hiring outlook appears muted ( ~35k gross adds with ~13k on the BPO front), we note that Infosys has hired ~19k people on a net level during FY12 and could most likely be running an unbilled Headcount of ~35k people and thus would most likely be used as volume growth picks up. We note that FY12 marks a blemish on Infosys’s long streak of ’beat and raise’ on rev guidance as company continued to miss the lowered guidance through the year. We see course correction on this front as management gets it’s acts together post the internal reorganization that has occupied centre stage through FY12.”

“Given recent disappointments through FY12 while peers TCS and Wipro have done fared relatively better, onus now lies on Infosys’s management to regaining it’s touch and deliver to street and investor expectations. In our view, valuations at ~15x FY13 P/E and ~10x EV/EBITDA capture these disappointments and hence would recommend buying Infosys on any further dips. Retain ACCUMLATE, TP Rs 2800 (V/s Rs 2,850 earlier),” says Emkay Global Financial Services research report.     

Non-Institutions holding more than 90% in Indian cos  

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