Hold Infosys; target of Rs 2860: Nirmal Bang
Brokerage house Nirmal Bang has recommended hold rating on Infosys with a revised price target of Rs 2,860, in its July 12, 2013 research report.
July 15, 2013 / 11:54 IST
Nirmal Bang's research report Infosys
"Infosys' 1QFY14 revenue beat expectations led by healthy on-site volume growth, signifying good project starts. Higher employee utilisation rate and rupee depreciation offset the impact of residual wage hikes, leading to flattish margins. This aided net profit to rise 5.7 percent/2.1 percent above our/consensus estimates, respectively. While the management continues to be cautious regarding the business environment, we believe key positive signs have emerged over the past couple of quarters, notably a strong YoY increase in on-site volume and rise in employee utilisation rate. We expect Infosys to start showing more consistency in its results going forward, given the above-stated positive factors. We believe the street has adjusted to the “higher revenue growth at the cost of margins” theme that Infosys will have to focus on and do not expect this to impact the valuation. We have thus upgraded the stock to Hold from Sell with a revised target price of Rs2,860 (Rs2,400 earlier) owing to a slight increase in our EPS estimates and a higher PE multiple of 14.5x FY15E EPS (12.5x FY15E EPS earlier).""Infosys posted a 2.7 percent QoQ rise in US dollar revenue, at US$1,991mn, above our estimate of US$1,963mn; volume grew 4 percent QoQ (IT services), while billing rates fell 0.6 percent QoQ. Onsite volume grew by a robust 5.8 percent QoQ, implying good project starts, while offshore volume rose 3.3 percent QoQ. It should be noted that this is the second successive quarter of double-digit YoY on-site volume growth (20 percent YoY in 1QFY14, 16 percent YoY in 4QFY13). Vertical-wise, retail and CPG posted healthy growth of 6.5 percent QoQ, while geographically it was North America that grew 4.8 percent QoQ. From a service line perspective, consulting & systems integration and application deveoplment grew at strong rates of 5.6 percent and 4.1 percent QoQ, respectively. This signifies good growth in discretionary portfolio, positive for pricing.""Infosys reported a flattish EBITDA margin at 26.5 percent, with the residual impact of wage hikes getting absorbed by rupee depreciation and higher employee utilisation rate. This was a key factor that boosted net profit, which came in 0.8 percent QoQ lower at Rs23.74bn, 5.7 percent/2.1 percent above our/consensus estimates, respectively.""Key positive signs have emerged over the past two quarters, notably a strong YoY increase in on-site volume and a rise in employee utilisation rate. We expect Infosys to start showing more consistency in its results going forward, given the above-stated positive factors. We believe the street has adjusted to the “higher revenue growth at the cost of margins” theme that Infosys will have to focus on and do not expect this to impact the valuation. We have upgraded the stock to Hold from Sell with a revised TP of Rs2,860 (Rs2,400 earlier) owing to a slight rise in our EPS estimates and a higher PE multiple of 14.5x FY15E EPS (12.5x FY15E EPS earlier)," says Nirmal Bang 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!
