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Post reorganisation, we believe Infosys will be better placed to tap deal flow
(particularly transformational and sole-sourced deals). It also looks well placed to
defend margins, given multiple operating levers. We cut our FY12/FY13/FY14 EPS
forecasts by 2%/8%/6%, but valuation still seems reasonable. Buy.
Completion of reorganisation gives impetus to grow well diversified revenue base
Given Infosys’s focus on strengthening its organisational structure, leadership team and
board, which we believe is almost done, the company is better aligned to meet its customers’
sales and delivery needs, in our view. Infosys is also having a big push to drive the revenue
share of transformation and innovation services, which we believe could boost its win rate in
large transformation and sole-sourced deals. While the current environment may not provide
great support for discretionary demand, Infosys still looks relatively well positioned given: a)
a diversified revenue base both in terms of verticals and service lines, and b) best-in-class
account mining capability, which is augmented by the new organisational structure. We
expect the company to meet the lower end of US dollar revenue growth guidance of 18-20%
for FY12, given our assumption that lower client budgets will impact growth in 2HFY12.
Multiple margin levers offer comfort in turbulent times
We believe Infosys is well positioned to deal with challenges on the margin front, in case
growth slows down. Given factors such as relatively lower utilisation, employee pyramid
management, offshoring potential, lower SG&A expenses and variable incentives offered to
achieve to growth/earnings targets, the company will be able to defend margins, in our view.
Although we have trimmed our revenue forecasts, we still expect a comfortable beat on its
FY12 EPS guidance of Rs128.2-130.1 at Rs135.
Valuation looks reasonable despite downward revisions to our forecasts: reiterate Buy
We have lowered our FY13/14F US dollar revenues by 9%/7% and EPS by 8%/6%, building
in a demand slowdown over 2HFY12. We lower our target P/E multiple by 8-10% to 18x vs a
FY12-FY14F EPS CAGR of 17%. This is a discount to the three-year average 12-month
forward P/E of 19x, factoring in increased earnings risk in the near to medium term. The
stock trades below -1x standard deviation on both P/E and P/B valuations, which we believe
represents an attractive entry level. We reiterate our Buy rating and lower our TP to Rs2765.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Post reorganisation, we believe Infosys will be better placed to tap deal flow
(particularly transformational and sole-sourced deals). It also looks well placed to
defend margins, given multiple operating levers. We cut our FY12/FY13/FY14 EPS
forecasts by 2%/8%/6%, but valuation still seems reasonable. Buy.
Completion of reorganisation gives impetus to grow well diversified revenue base
Given Infosys’s focus on strengthening its organisational structure, leadership team and
board, which we believe is almost done, the company is better aligned to meet its customers’
sales and delivery needs, in our view. Infosys is also having a big push to drive the revenue
share of transformation and innovation services, which we believe could boost its win rate in
large transformation and sole-sourced deals. While the current environment may not provide
great support for discretionary demand, Infosys still looks relatively well positioned given: a)
a diversified revenue base both in terms of verticals and service lines, and b) best-in-class
account mining capability, which is augmented by the new organisational structure. We
expect the company to meet the lower end of US dollar revenue growth guidance of 18-20%
for FY12, given our assumption that lower client budgets will impact growth in 2HFY12.
Multiple margin levers offer comfort in turbulent times
We believe Infosys is well positioned to deal with challenges on the margin front, in case
growth slows down. Given factors such as relatively lower utilisation, employee pyramid
management, offshoring potential, lower SG&A expenses and variable incentives offered to
achieve to growth/earnings targets, the company will be able to defend margins, in our view.
Although we have trimmed our revenue forecasts, we still expect a comfortable beat on its
FY12 EPS guidance of Rs128.2-130.1 at Rs135.
Valuation looks reasonable despite downward revisions to our forecasts: reiterate Buy
We have lowered our FY13/14F US dollar revenues by 9%/7% and EPS by 8%/6%, building
in a demand slowdown over 2HFY12. We lower our target P/E multiple by 8-10% to 18x vs a
FY12-FY14F EPS CAGR of 17%. This is a discount to the three-year average 12-month
forward P/E of 19x, factoring in increased earnings risk in the near to medium term. The
stock trades below -1x standard deviation on both P/E and P/B valuations, which we believe
represents an attractive entry level. We reiterate our Buy rating and lower our TP to Rs2765.
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