Reduce Infosys; target Rs 2750: Dolat Capital
Brokerage house Dolat Capital has recommended a reduce rating on Infosys with a target price of Rs 2750 in its July 12, 2013 research report.
July 12, 2013 / 16:31 IST
Dolat Capital's research report on Infosys
"We believe the 4 percent volume growth in IT Services in Q1 indicates likely achievement of upper end of guidance even with moderate 2 percent CQGR for rest of the fiscal. The growth metrics (across geos and service line) and commentary has been getting better however, it expects challenges on profitability front due to wage hike and upfront margin dilutive bids seen in the market. We believe though the INR depreciation would flare up revenues in reported terms earnings growth would be soft owing to the above mentioned factors. As in past the result reaction has been sharp and discounts most of the positives in the results and thus we believe it to remain Marketperformer for the moment.""Infosys delivered results inline with our expectations with a topline growth of 2.7 percent QoQ for Q1FY14 at $ 1.99bn ahead of our estimate of 2 percent growth QoQ inline with its implied guidance for the quarter. The revenues in reported currency grew by 7.8 percent QoQ to INR 112bn (DE at ` 108bn). Operating profits were inline at INR 26.6bn (DE at INR 26bn) with OPM flat at 23.6 percent (down 170bp in USD terms). Profit were lower at INR 23.7bn (down 1 percent QoQ) against our estimates of INR 25bn owing to weak other income (down 14 percent QQ) and higher ETR at 26.8 percent.""Infosys has added 66 new clients in the quarter and 7 large deal with total TCV of over USD 600mn. The demand has been largely on the rebid business as discretionary spends decision making remain inconsistent. We expect 11 percent CAGR on USD revenues over FY13-15E.""The company has reported flat OPM of 23.6 percent for the quarter, down 170bp QQ in USD terms which remains the biggest concern. It has given selective hikes to sales team in Q1 and the rest of the workforce would get hikes in Q2 (Onsite 3 percent, Offshore 8 percent). It is expecting 300bps impact on wage hike which would get negated partially through currency tailwinds. We have built in 180bps decline in OPM for FY14E over FY13. We have revised our EPS upwards by 2/5 percent for FY14/15E post restatement of INR/USD at 58."Valuation: "We believe the revenue growth differential would narrow a bit but earning growth gap would remain leading to sustained valuation discount over TCS. We maintain our Marketperformer rating on the stock with a TP of INR 2750, valued at 13.5x of its FY15E earnings (25 percent discount to TCS)," says Dolat Capital 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. 
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