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India Equity Research Reports, IPO and Stock News
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Demand remains strong, supply side pressure easing
Restructuring likely to be announced soon, however unlikely to be any significant upheavals, in our view.
Demand remains strong and the company expects to see better hiring and retention in 2011 as i-Race (role reorganization
program) aftermath fades away.
Supply side pressures are easing and attrition is declining gradually every month.
Valuation and risks
We value Infosys at a PE of around 22x on our CY12e EPS at INR3,830. We use this target multiple because historically
the stock has traded at a seven-year average 12-month forward earnings multiple of c22x.
We expect stock returns to be in line with earnings growth. We see modest upside risk to FY12 EPS estimates and find
valuations in-line with the historical range. Infosys has a PEG of 0.95x compared to a 5-yr average of 1.1x. Only 40% of
the time in the past five years has the stock has traded at a lower PEG ratio.
Risks: 1) INR appreciation vs. USD (1% appreciation affects margins by 30-40bps) remains a big concern with foreign
inflows into India increasing steadily; 2) deterioration in macro economic conditions.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Demand remains strong, supply side pressure easing
Restructuring likely to be announced soon, however unlikely to be any significant upheavals, in our view.
Demand remains strong and the company expects to see better hiring and retention in 2011 as i-Race (role reorganization
program) aftermath fades away.
Supply side pressures are easing and attrition is declining gradually every month.
Valuation and risks
We value Infosys at a PE of around 22x on our CY12e EPS at INR3,830. We use this target multiple because historically
the stock has traded at a seven-year average 12-month forward earnings multiple of c22x.
We expect stock returns to be in line with earnings growth. We see modest upside risk to FY12 EPS estimates and find
valuations in-line with the historical range. Infosys has a PEG of 0.95x compared to a 5-yr average of 1.1x. Only 40% of
the time in the past five years has the stock has traded at a lower PEG ratio.
Risks: 1) INR appreciation vs. USD (1% appreciation affects margins by 30-40bps) remains a big concern with foreign
inflows into India increasing steadily; 2) deterioration in macro economic conditions.
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