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Narnolia Securities Limited buys view on the stock as expected Infosys growth in all segments

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Information about Narnolia Securities Limited buys view on the stock as expected Infosys...
Finance

Published on December 18, 2013

Author: narnolialtd

Source: slideshare.net

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Narnolia Securities Limited expects Infosys growth in all segments as well as to be stable in the coming quarters. We recommended buy stock which is upgraded our target price from Rs 3395 to Rs 3622 marginally improved by 60bps
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Infosys Fusion Investment Call Target: 3622 Tenure: Medium Highlights • • • • • • • • • • • • • • • Infosys is an Indian multinational provider of business consulting, information technology, software engineering and outsourcing services. It is headquartered in Bengaluru, Karnataka. Infosys witnessed best set of numbers than streets expectation with 15.1% sales growth in INR term led by 3.1% (QoQ) volume growth with sound demand environment across the all geographies and all verticals. The company also reported 3.8% of healthy revenue growth in USD term and 4.2% revenue growth in constant currency term. PAT marginally grew by 1.4%, sequentially. In dollar terms, the uptick in revenue is not reflected in the net profit because the company has increased expenditure in the sales engine and its other income is lower during the quarter. Margin: Even though the currency has declined 11% in Q2, as most of the gains from currency have been reinvested in the business. During the quarter, salary hike and visa cost, impacted its EBITDA margin dip by 170bps (QoQ) to 21.9%. Infosys also said it expects its operating margin to be steady at about 23.5 percent if the rupee is stable. On segmental front: Infosys has reported teen set of growth in all segments , On geographical front, company’s US revenue grew by 15.3%, Europe market by 17% (QoQ) and RoW increased by 12.3% sequentially. During the quarter revenue uptick in US and Europe Volume growth: Health demand environment and better order inflow scenario company’s volume growth improved by 3.1% (QoQ) led by 4.2% offshore volume growth , while 4.1% volume growth was reported in 1QFY14. In addition, pricing has marginally improved by 60bps, we expect it to be stable in the coming quarters. However, somehow furloughs impact could be seen with volume growth in 3QFY14. On client metrics, Q2 has been fairly good and all around. They added 68 new clients and 37 net additional clients, which is one of the highest over the quarters in Infosys history. They closed 5-6 large deals, large deals are mostly USD 50 million and above and it will be realized over the next 3-5 years. The company’s top 25 accounts have grown by 3.3% and non-top 25 also grown by 3.4% or so. 10 clients growing at 5.9% QoQ ( highest in over 12 quarters)Top 1: +3.8%, Top 5: +4.5 %and Top 10 :5.9% QoQ( highest growth in over 12 quarters)Non Top 10:+3.1% QoQ. During the quarter and has added 2,964 (gross addition of employees is at 12,168) employees to 160227. Still, attrition rate jumps 5 year high at 17.3% in Sept quarter. We expect, it could be down in coming 2-3quarters because of new strategy formulation for HR development and motivation scheme. Also, utilization levels are up to 73.7% in Q2 from 72.4% in Q1 (including trainees). Utilization levels excluding trainees is up to 77.8% in Q2 from 75.9% in Q1. Infosys management upgrades their earning guidance from 6-10% to 9-10% for FY14E, still below NASSCOM guidance (12-14%). Management is very confident to achieve the guidance figure and stated much focused on creating superior financial performance ahead. In INR term, we expect very few Indian companies are able to report more than 20% revenue growth for the year, in the uncertain kind of economic environment. Now Infosys came to the party to enjoy with more than 20% revenue growth in INR term for FY14E. The key point is whether Infosys is getting back to the ground, at least, HCL Technologies kind of growth parameter. HCL Technologies was expected to grow at 14% in FY14E. With these numbers, Infosys will get very close to those kinds of growth numbers—maybe 10-12%. If Infosys reports more than this number, that is good and street would consider. I think, the game is not over.. Despite all expectations, we would love to hear some announcement of strategic acquisitions, now there is some smell of local acquisition with the company because of healthy cash balance. We believe, recent management change (Murthy's entry) is meaningful but we are not very optimistic and not looking one night change scenario on the company's fundamentals. Infosys is increasing investment in sales and doing a better job at winning large outsourcing contracts to which it is devoting more senior management attention. Its better deal win, consistent client traction and strong revenue momentum would help the company to bridge the gap with rivals such as TCS and HCL Tech. Considering the revised guidance by management and its growth priority than margin strategy, we marginally upgraded our EPS to Rs 181/208 for FY14E/FY15E. At a CMP of Rs 3349 it trades at 18x FY14E and 16x FY15E earnings. We retain our “BUY” view on the stock and upgraded our target price from Rs 3395 to Rs 3622. :::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: Risk Disclosure & Disclaimer: This report/message is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. Narnolia Securities Ltd. (Hereinafter referred as NSL) is not soliciting any action based upon it. This report/message is not for public distribution and has been furnished to you solely for your information and should not be reproduced or redistributed to any other person in any from. The report/message is based upon publicly available information, findings of our research wing “East wind” & information that we consider reliable, but we do not represent that it is accurate or complete and we do not provide any express or implied warranty of any kind, and also these are subject to change without notice. The recipients of this report should rely on their own investigations, should use their own judgment for taking any investment decisions keeping in mind that past performance is not necessarily a guide to future performance & that the the value of any investment or income are subject to market and other risks. Further it will be safe to assume that NSL and /or its Group or associate Companies, their Directors, affiliates and/or employees may have interests/ positions, financial or otherwise, individually or otherwise in the recommended/mentioned securities/mutual funds/ model funds and other investment products which may be added or disposed including & other mentioned in this report/message. NSL or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any action taken based on the above information or inadvertent error in the information contained in this report/message. :::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

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