Buy Infosys; target of Rs 2449: Angel Broking

Angel Broking's report on Infosys

"Infosys’ 3QFY2015 results have come in ahead of our expectations. For the quarter, the company posted a 0.8% sequential growth in USD revenues to US$2,218mn, exactly in line of our expectations. In constant currency (CC) terms, the company posted a 2.6% qoq growth (in US$ terms). The volume growth during the quarter was of 4.2% (qoq), the highest in the last three years. On the operating front, the EBIT margins came in at 26.7% (V/s an expected 26.3%), an expansion of 63bp qoq. Consequently, the PAT came in at Rs 3,250cr (V/s an expected Rs 3,182cr), a growth of 5.0% qoq. The company has maintained its FY2015 dollar guidance at 7-9% (considering US/INR rate as on September 30, 2014)."

"The Company posted a 0.8% sequential growth in USD revenues to US$2,218mn, exactly in line with our expectations. In constant currency (CC) terms, the company posted a 2.6% qoq growth (in USD terms). The volume growth during the quarter was of 4.2% (qoq), the highest in last three years. Among key geographies, India grew well (albeit on a small base), ie. by 16.7% qoq in USD CC terms; while USA grew by 2.3% qoq in USD CC terms. The domain that posted the highest growth during the quarter was BSFI, which posted a USD CC qoq growth of 4.0%. On the operating front, the EBIT came in at 26.7% (V/s an expected 26.3%), an expansion of 63bp qoq; mainly on back of exchange gains. Consequently, the PAT came in at Rs 3,250cr (V/s an expected Rs 3,182cr), a growth of 5.0% qoq."

Outlook and valuation: "Going forward, the company has maintained its future CC USD revenue growth guidance for FY2015 at 7-9%. It expects EBIT margins to be sustained at the current levels. Over the next two-three years, the company has guided towards moving into a trajectory of 15-18% growth with EBIT margins of 26%-28%. On the valuation front, the stock is cheap at current valuations of 17.3x FY2016E earnings. The stock is trading at a discount to its peer like TCS; we believe the valuation gap can narrow down once growth picks up at Infosys. We maintain our Buy rating on the stock with a target price of Rs 2449", says Angel Broking research report.

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