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Infosys
Likely beneficiary of a revival in the Telecom/ERP market and
continued momentum in the BFSI/Retail market
We expect a strong USD revenue growth of 27% in FY12
Remain OW with a TP of INR3,830
2011 vs. 2010
Infosys has lagged behind TCS in the recent past,
both on top-line growth and profitability. In the
past four quarters, Infosys has grown at a CAGR
of 6.5% and EBITDA margins have declined by
c230bps. Compared to that, TCS has grown at a
CAGR of 7% and has expanded EBITDA margins
by 60bps (TCS has expanded margins by 450bps
in the past 7 quarters).
We believe Infosys’s weaker relative performance to
TCS was influenced by an ill-timed HR initiative – i-
RACE. Additionally, in our view, the company has
been too conservative while structuring deals and
bidding for new deals. For instance, TCS onshoreoffshore
ratio has improved by 1,000bps since
1QFY09 and fixed price project contribution has
improved by 690bps in the same period. In
comparison to that Infosys’ offshore contribution of
revenues has declined by 140bps in the same period
and fixed price contract contribution has improved
by 840bps.
In our view, management is likely to address these
concerns in the imminent corporate restructuring and
should therefore be able to grow stronger in FY12.
We continue to expect robust 27% USD top-line
growth in FY12 and flat EBITDA margins at 33.5%.
Valuations
The stock is currently trading at c20x FY12 EPS.
We remain OW and value Infosys at 22x (inline with
the historic average) our CY12e EPS of INR3,830.
We believe, with an earnings CAGR of 24% FY11-
13e, current valuations are not stretched. The stock is
currently trading at a PEG of 0.95x and it is only
40% of the times in the past five years the stock has
traded below these levels.
Risks
Macro-economic slowdown, wage inflation and
stronger competition from peers are the primary
risks to our OW thesis.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Infosys
Likely beneficiary of a revival in the Telecom/ERP market and
continued momentum in the BFSI/Retail market
We expect a strong USD revenue growth of 27% in FY12
Remain OW with a TP of INR3,830
2011 vs. 2010
Infosys has lagged behind TCS in the recent past,
both on top-line growth and profitability. In the
past four quarters, Infosys has grown at a CAGR
of 6.5% and EBITDA margins have declined by
c230bps. Compared to that, TCS has grown at a
CAGR of 7% and has expanded EBITDA margins
by 60bps (TCS has expanded margins by 450bps
in the past 7 quarters).
We believe Infosys’s weaker relative performance to
TCS was influenced by an ill-timed HR initiative – i-
RACE. Additionally, in our view, the company has
been too conservative while structuring deals and
bidding for new deals. For instance, TCS onshoreoffshore
ratio has improved by 1,000bps since
1QFY09 and fixed price project contribution has
improved by 690bps in the same period. In
comparison to that Infosys’ offshore contribution of
revenues has declined by 140bps in the same period
and fixed price contract contribution has improved
by 840bps.
In our view, management is likely to address these
concerns in the imminent corporate restructuring and
should therefore be able to grow stronger in FY12.
We continue to expect robust 27% USD top-line
growth in FY12 and flat EBITDA margins at 33.5%.
Valuations
The stock is currently trading at c20x FY12 EPS.
We remain OW and value Infosys at 22x (inline with
the historic average) our CY12e EPS of INR3,830.
We believe, with an earnings CAGR of 24% FY11-
13e, current valuations are not stretched. The stock is
currently trading at a PEG of 0.95x and it is only
40% of the times in the past five years the stock has
traded below these levels.
Risks
Macro-economic slowdown, wage inflation and
stronger competition from peers are the primary
risks to our OW thesis.
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