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CLSA raises target price on Infosys ahead of Q3 results to Rs 1230; sees 21% upside

Infosys is the top pick of CLSA for 2018 given reasonable earnings growth and rerating potential.

January 08, 2018 / 11:39 AM IST
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Infosys was an underperformer in the year 2017 could well bounce back in the year 2018 with most brokerage firms keeping an upbeat forest for India’s second-largest software exporter.

The global brokerage firm, CLSA in a report maintained its buy recommendation on the counter but raised its 12-month target price to Rs 1,230 from Rs 1,140 earlier ahead of results for the quarter ended December. The increase in target price translates into an upside of 21 percent from current levels.

“Infosys just saw through one of its worst recent years but the company has the potential of completing strategic retooling and improve capital allocation,” said the CLSA note.

Key changes to strategy should continue in the near to medium term. The demand environment is supportive for Infosys’ business mix. The global investment bank expects valuation gap with peers to narrow going forward.

It is the top pick of CLSA for 2018 given reasonable earnings growth and rerating potential.

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The country's second-largest software services provider will announce its first quarterly earnings under newly appointed CEO & MD Salil Parekh on January 12.

Parekh formally took over as the Chief Executive Officer (CEO) and Managing Director (MD) of Infosys last week. Besides improving profitability, Parekh will face challenges such as ensuring no senior-level executive exits the firm.

Parekh, who was one of Capgemini's five deputy CEOs, has experience in the cloud computing business, ability to handle large acquisitions and a strong grip on technology and sales.

Most global brokerages expect Infosys to report a constant revenue growth of 1.2 percent and maintain a guidance of 5.5-6.5 percent constant currency revenue growth and 23-25 percent EBIT margin.

“We expect constant currency revenue growth of 1.2 percent and negligible cross-currency impact. We expect flat EBIT margin; impact of weakness in revenue growth would be offset by operational efficiencies,” Kotak Institutional Equities said in a note.

The domestic investment bank expects Infosys to maintain guidance of 5.5-6.5 percent constant currency revenue growth and 23-25 percent EBIT margin.

It expects investor focus on strategy of the new CEO especially on the following fronts (1) focus on development/promotion of proprietary software versus adoption of 3rd party products/platforms, (2) M&A strategy, (3) focus and strategy for revival of consulting practice.

Edelweiss Securities believes that Salil Parekh who is taking over as CEO from January 2, his strategy and vision to drive the company out of challenges will be key monitorable.

“We estimate Infosys to post 1.4 percent QoQ growth in USD terms, impacted 10bps by cross currency, implying 1.5 percent QoQ constant currency (cc) growth. With clients increasingly adopting Nia, Panaya, Skava & Edge, new technologies are expected to drive revenue during the quarter,” it said.
first published: Jan 8, 2018 11:39 am

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