Hold Infosys; target of Rs 2700: SPA Research

SPA Research has recommended hold rating on Infosys with a target of Rs 2700, in its October 12, 2012 research report.

“Infosys registered a steady USD revenue growth of 2.57% to $1797mn though lower than our expc. of $1811mn. The growth was on the back of 3.8% volume growth. The EBIT margins however declined by 170bps to 26.3% on the back of higher subcontracting cost and wage hike. The organic guidance for USD revenue growth was unchanged at “Atleast 5%” but the INR EPS guidance was revised down by 4% to “Atleast 160.61”. Resignation and reassignment of Mr. Balakrishnan does not add to our confidence. Thus, we continue to recommend HOLD with a 18 month TP of INR 2700.”

“Q2FY13 result of Infosys is a mixed bag. Its revenue at $1,797mn (SPA est. $1,811mn) was up QoQ by 2.6% (INR 98.6bn up 2.5% QoQ ). The company witnessed a volume growth of 3.8% with flat pricing (-0.2%). To meet its organic USD revenue growth target of 5% it will have to grow at 3.7% CQGR in H2 which is a seasonally weeker half. Q2FY13 result of Infosys is a mixed bag. Its revenue at $1,797mn (SPA est. $1,811mn) was up QoQ by 2.6% (INR 98.6bn up 2.5% QoQ ). The company witnessed a volume growth of 3.8% with flat pricing (-0.2%). To meet its organic USD revenue growth target of 5% it will have to grow at 3.7% CQGR in H2 which is a seasonally weeker half.”

"The company is facing two major concerns (i) Margin decline of c.400bps in three quarters with INR headwind and wage hikes and (ii) High expectations from a seasonally week half. However inorganically we expect the company to showcase a 5%+ USD revenue growth in FY13E. We continue to factor a 13.5% EPS CAGR over FY12-14E thus recommending HOLD on the stock with a TP of INR 2700 (INR 234 Cash/share + INR 2466 at 13x FY14E EPS of INR 189),” says SPA Research report.

Public holding more than 90% in Indian cos

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