Hold Infosys; target of Rs 4146: Arihant capital markets

Arihant capital markets research report on Infosys“Infosys has delivered good set of numbers with a top line growth of 3.2% qoq at $2,201mn. Rupee revenues increased 4.5% qoq to Rs 13,342cr, due to depreciation of all major currencies against USD. Company reported 3.0% qoq growth in volumes and of this offshore segment reported 3.8% growth, while onshore segment reported 1.1% growth qoq. Utilization level (ex‐trainees) is at all time high of 82.3%. Company has aggressive hiring plans in FY15 to avoid facing shortage of talent. Net addition during the quarter was 4,127 employees. Revenue mix among verticals more or less remained constant with FSI and RCL (Retail & Life Sciences) segments contributing 32.8% and 23.4% to topline. ECS (Energy, Utilities Communication & Services) segment’s share in total revenues was at 20.5%. Geographical share remained more or less stable with share of North America, Europe, India and RoW was at 60.8%, 24.7%, 2.2% and 12.3% respectively. Company has recorded an operating profit of Rs 3,483cr; up 8.5% qoq, this is in spite of giving 100% bonus to all employees during the quarter. This was possible due to cost optimization and higher utilization levels which reflect CEO’s belief of deliver more with fewer resources for betterment of more. EBIT Margins increased qoq by whopping 96 bps to 26.11%.” “Management has maintained FY15 $ revenue growth guidance at 7‐9% but increased Rupee revenue guidance from 5.6‐7.6% to 6.7‐8.7% due to depreciation of all major global currencies vs. USD. Management has indicated faster decision making by clients helped company to grow faster. It has also indicated increased traction in areas of cloud computing, mobile technology, energy. Company has added 49 new clients during the quarter and won 7 large deals with a cumulative value of ~ $ 600 mn. Overall management expects FY15 operating margins to remain at 25 +/‐ 1%. According to Dr Vishal Sikka second generation IT company could expect a revenue growth of 15‐18 % and EBIT margins of 25‐28% over a long term and Infosys is aiming to become second generation IT Company through knowledge enhancement.” “Infosys’s guidance for FY15 signifies the likely accrual of benefits coming from productivity improvement measures it has taken in recent times. Company is expected to benefit from tailwinds like retrenchment of non‐performers, scope for effort mix shift and improvement in utilization rates over long term. We believe Infosys deserve a re‐rating thus we have assigned a higher PE of 18.5x (16x) to its FY16E earnings and have arrived at fair value of Rs 4,146 per share. At CMP Rs 3,889, stock trades at 17.4(x) its FY16 earnings. We have HOLD rating on the stock,” says Arihant capital markets research report. 

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