Buy Infosys; target of Rs 2870: Dolat Capital

Dolat Capital is bullish on Infosys and has recommended buy rating on the stock with a target of Rs 2870 in its April 13, 2012 research report.

“Infosys reported its Q4 FY12 numbers with a 4.8% QoQ decline at Rs 88.5bn (degrowth of 2.1% in constant currency) – below our estimates of 1% growth. It closed a year with a 15.3% growth in USD revenues below revised guidance of 16.4% (original 20%) as it witnessed ramp downs towards the end of Q4.”

“It guided for 8-10% revenue growth in USD revenues and margin decline of 100bps over FY12. Has deferred wage hikes for the moment and indicated addition of 35,000 headcounts for the year. We believe the guidance is realistic and is driven by specific delays and ramp downs that company is facing. Infosys earnings in recent past is getting more & more eventful and price volatile driven by factors – Guidance disappointment, management exits, weaker performance than expectations/guidance. The share price on the day of earnings has also been reacting sharply as expectations with the company continue to remain high. We believe sustained underperformance versus TCS/Cognizant/ HCL suggest weak demand and poor strategy at Infosys driven by management transition, stickiness on pricing premium & margin and operational excellence.”

“We believe that the disappointing revenue growth guidance below the NASSCOM growth expectations suggests company specific concern as compared to weak demand environment. Negative margin expectancy suggests flat to negative pricing/ productivity in FY13. We have cut our EPS estimate by 3%/5% for FY13/14E. We believe post the price correction; valuations are attractive at 15x on FY13E earnings. However, the stock would continue to underperform the peers in the near term till it start delivering results ahead of expectations. We maintain our Buy call on the stock with a price target of Rs 2870, valued at 15x on its FY14E earnings,” says Dolat Capital research report. 

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