Buy Infosys; target of Rs 4500: Sharekhan

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Sharekhan`s research report on Infosys“In Q2FY2015 the revenues of Infosys in the reported currency grew by 3.2% QoQ to $2,201 million (revenues up 3.9% in constant currency terms, volumes up by a decent 3% and realisation up by 0.6% QoQ). On the margin front, the EBIT margin improved by 100BPS to 26.1%, driven by higher utilisation and offshore shift. The net income rose by 7.3% QoQ to Rs3,096 crore.” “Dr. Vishal Sikka has given a strategic roadmap to take Infosys back to its old way of predictable and sustainable earnings performance in the coming quarters. Going forward, the emphasis will be on enhancing the service delivery and product innovation through higher usage of automation, innovation and operational efficiency, as well as on new technologies like big data analytics and design thinking among others. In the coming quarters, Dr. Sikka will share the detailed plans of his strategy and its financial implications.” “The transition process of a strategic roadmap is a long-drawn process. However, Infosys has already been in the transition mode for the last one and half years, ie since Narayana Murthy took over the leadership in June 2013. We believe under the leadership of Dr. Sikka the transition process will accelerate and get over by Q4FY2015. We expect to see a predictable and sustainable earnings performance in FY2016 and FY2017. We have introduced our earnings estimate for FY2017 in this note; we expect a 12% earnings CAGR over FY2015-17. At the current market price of Rs3,943 the stock trades at 16.0x and 14.2x FY2016E and FY2017E earnings respectively. Given the positive leadership change, more importantly, the possible deployment of cash of $5.54 billion (as at the end of Q2FY2015), which is a strong re-rating trigger, and the roll-over of the target multiple to the FY2017 estimates, we upgrade Infosys to Buy from Hold with a revised price target of Rs4,500, which is 16x the FY2017E earnings,” says Sharekhan research report.

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