Hold Infosys; target Rs 2982: Sushil Finance
Sushil Finance has recommended hold rating on Infosys with a target price of Rs 2982, in its July 15, 2013 research report.
July 16, 2013 / 13:27 IST
Sushil Finance's research report on Infosys
"During Q1FY14, Infosys delivered decent performance as its USD Revenue grew 2.7 percent QoQ to 1,991 mn which was in line with our estimates and ahead of street's expectations of 1-1.5 percent QoQ growth. Excluding USD 90.7 mn contribution of Lodestone, its organic Revenues in USD term grew 1.7 percent QoQ, while in constant currency its USD Revenues grew by 3.4 percent QoQ led by 4.1 percent QoQ volume growth which was partially mitigated by 0.7 percent QoQ price decline. INR Revenues grew by 7.8 percent QoQ to Rs. 112,670 mn driven by 4.9 percent QoQ increase in average Rs/USD rate. The decent growth during Q1 can be attributed to strong growth from US (4.9 percent) region and Retail (6.3 percent) & manufacturing (4 percent) verticals.'"Its EBIT for Q1FY14 grew 8.2 percent QoQ to Rs. 26,640 mn, while the EBIT margins remained stable at 23.6 percent, mainly due to benefits of Rupee deprecation & improved utilization (72.4 vs. 70.9 percent), which was offset by (i) 8 percent increment for employees in sales effective 1st may'13 (ii) salary hikes of last year and (iii) other business investments. However, its APAT declined 0.8 percent QoQ to Rs. 23,740 mn, on account of lower other income (Rs. 5,770 mn), and higher tax provisioning (26.8 percent of PBT). Going forward, due to uneven deal closure rates, new restructuring/rebid deals coming at lower rates along with wage increments effective 1st july'13 (8 percent offshore, 3 percent onsite), the management expects its EBIT margins to remain under pressure in near term. Considering these factors, we expect Infosys to deliver 22.5 percent EBIT margins in FY14 vs. 25.8 percent in FY13. During the quarter, the company won 7 large deals (3 in BFSI, 2 in manufacturing) of TCV USD 600 mn, while deal pipeline remained stable and competitive.'"Despite decent growth in Q1FY14, the management didn't revise its USD Revenue growth guidance of 6-10 percent as it expects the environment to remain challenging and clients' IT budgets are limited, while new deals are coming at very competitive rates. At the beginning of FY14, the management abstained from providing any EPS guidance due to volatile business & pricing environment. Despite significant large deal wins in recent past, the company is witnessing slower ramp-ups and pricing pressure which has restricted its ability to anticipate longer term growth & earnings. In our view, Infosys is likely to exceed its FY14 Dollar Revenue guidance and achieve ~12 percent growth.""Its balance sheet remained very strong with low Debtor Days (65 days) and High Net Cash in excess of USD 4.1 bn (Rs.240 bn) as on 30th June, 2013. The return on investment has been encouraging with its FY13 RoCE & RoE in excess of 36 percent & 27 percent respectively. Going forward, the better utilization of its idle cash in high growth service offerings or markets could further improve its return on investments. Although the current valuation & cash position provide some respite to shareholders, the upside in the stock is possible only on some visible improvement in its operational performance and its ability to utilize its cash in acquisitions."OUTLOOK & VALUATION: "Considering its Q1FY14 performance and business outlook, we have slightly upgraded our FY14E & FY15E INR Revenue & earnings estimates. Going forward, we expect its FY14E & FY15E Revenues to grow by 17 percent & 12.2 percent respectively, while expect its APAT to grow by 1.3 percent in FY14E & by 11.8 percent in FY15E. We also increase the valuation multiple to 16x its FY15E earnings (~10 percent discount to its historical average forward P/E). The CMP of Rs.2,742 discounts its FY14E & FY15E Earnings of Rs.166.8 & Rs.186.4 by 16.4x & 14.7x respectively. We change our rating to 'HOLD' on the stock with increased price target of Rs. 2,982," says Sushil Finance research report.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. 
Read More
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
