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Near-term safety with rebound possibilities
No near-term lag vs. peers; a
better rebound candidate and
low expectations in valuations
Action: Better positioned for a rebound, troubles not structural; Buy
We believe Infosys is best positioned for a rebound as productisation
revival, shift in client spending towards change-the-business and
regulation-related spending start playing out from 2HFY13F onwards.
Contrary to consensus, we believe Infosys’ troubles are not structural, but
more environment-led. In the near term, too, we believe Infosys will post
on-par growth compared to peers such as TCS (which have been more
upbeat on commentary). This coupled with bigger potential gains from
rupee depreciation and low expectations built into valuations makes us
positive on the stock. We reaffirm Buy.
Catalysts: Pricing stability; revival in package implementation
We like the longer-term strategy of sustaining margins/multiples
We believe Infosys’ strategy of deriving two-thirds of revenue from high
realization/high margin/non-linear services is the right approach to counter
wage cost increases, competitive pressure and longer-term deterioration
in valuation multiples. Infosys has the highest exposure to such services
(~40% of revenue) and is the best placed in tier 1 IT to succeed with this
strategy, in our view.
Valuations already build in concerns; Buy with a new TP of INR3,300
We reiterate Buy on Infosys on: 1) better positioning for a rebound,
2) near-term upside triggers from bigger INR depreciation benefits, and
3) valuation discount of 10% to TCS and its own historical average, pricing
in management’s cautious demand commentary. Our TP increases to
INR3,300 (from INR3,100) on changes to our USD-INR assumptions.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Near-term safety with rebound possibilities
No near-term lag vs. peers; a
better rebound candidate and
low expectations in valuations
Action: Better positioned for a rebound, troubles not structural; Buy
We believe Infosys is best positioned for a rebound as productisation
revival, shift in client spending towards change-the-business and
regulation-related spending start playing out from 2HFY13F onwards.
Contrary to consensus, we believe Infosys’ troubles are not structural, but
more environment-led. In the near term, too, we believe Infosys will post
on-par growth compared to peers such as TCS (which have been more
upbeat on commentary). This coupled with bigger potential gains from
rupee depreciation and low expectations built into valuations makes us
positive on the stock. We reaffirm Buy.
Catalysts: Pricing stability; revival in package implementation
We like the longer-term strategy of sustaining margins/multiples
We believe Infosys’ strategy of deriving two-thirds of revenue from high
realization/high margin/non-linear services is the right approach to counter
wage cost increases, competitive pressure and longer-term deterioration
in valuation multiples. Infosys has the highest exposure to such services
(~40% of revenue) and is the best placed in tier 1 IT to succeed with this
strategy, in our view.
Valuations already build in concerns; Buy with a new TP of INR3,300
We reiterate Buy on Infosys on: 1) better positioning for a rebound,
2) near-term upside triggers from bigger INR depreciation benefits, and
3) valuation discount of 10% to TCS and its own historical average, pricing
in management’s cautious demand commentary. Our TP increases to
INR3,300 (from INR3,100) on changes to our USD-INR assumptions.
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