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Infosys hits record high; brokerages up target post Q2 nos

Barclays maintains overweight rating on the stock with revised target price of Rs 4,650 (from Rs 3,800) as new CEO Vishal Sikka's plan to embrace newer technologies such as automation and AI to drive growth, is a step in the right direction.

October 13, 2014 / 04:09 PM IST
 
 
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Shares of Infosys gained another 1.8 percent to hit an all-time high of Rs 3,958.90 as brokerages raised target price on the stock post better-than-expected earnings in second quarter of current financial year 2014-15.


Software services exporter reported a 7.3 percent sequential growth (up 28.6 percent year-on-year) in consolidated net profit at Rs 3,096 crore on strong revenue and operational growth. Dollar revenue grew 3.1 percent Q-o-Q to USD 2,201 million as against expectations of 2.9 percent growth.


Barclays maintains overweight rating on the stock with revised target price of Rs 4,650 (from Rs 3,800) as it believes new CEO Vishal Sikka's plan to embrace newer technologies such as automation and AI to drive growth, is a step in the right direction.


The brokerage does not expect any negative surprises on FY15 dollar revenue guidance that was maintained by the company at 7-9 percent. The management's aggressive commentary on growth surprised positively.

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Sikka sees meaningful revival in business in another two years, in line with Narayana Murthy's timeline of seeing revival in three years. He has a long-term target to grow at 15-18 percent. The company’s long-term EBIT margin range is 25-38 percent.


He sees digital transformation driving growth of the company going forward. "Digital transformation is reshaping the business of every one of our clients. We see this as a great opportunity to help them renew the core of their business as well as to expand into new frontiers and are seeing early positive results," he said.


"Our strategy is to apply the same principles to our own business in order to capture this opportunity and accelerate our growth, within our culture of lifelong learning and purposeful work," he added.


Standard Chartered and Nomura also raised target price on the stock to Rs 4,360 (from Rs 4,240) and Rs 4,300 (from Rs 3,790) and maintain outperform and buy ratings, respectively.


"Three things keep us constructive on Infosys, which are strategic clarity around reinventing its core offerings and using innovation to drive traction in newer technologies; improvement in predictability with well distributed growth across segments and consistency in operations; and more promising outlook on cash utilisation/return," said Nomura.


Credit Suisse feels fundamental performance seems to have bottomed out and the management flux seems to be over. However, growth is still lagging that of top peers.


Keeping a neutral stance, Goldman Sachs also believes Infosys will continue to lag peers in medium-term.


According to Credit Suisse, the new management team's ability to get back to industry-leading growth is more important and it thinks there is still uncertainty around that.


At 12:02 hours IST, the stock was quoting at Rs 3,947.85, up Rs 58.90, or 1.51 percent on the BSE.

Posted by Sunil Shankar Matkar

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