Infosys- In the same dimension : Prabhudas Lilladher

We met Mr. Abraham Matthews (Head Finance, Infosys BPO) to understand the
demand environment for both, BPO and Infosys. The management is confident of
achieving guidance despite the cross-currency impact. Moreover, the currency
benefit has given them a scope for wage hike. The increased likelihood of inorganic
growth and low expectation gives the comfort for a “BUY” rating.

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􀂄 BPO likely to outpace overall growth in FY13: The management was confident
of delivering growth stronger than overall growth of (8-10%), excluding
~US$30m contribution from the acquisition. BPO (FY12: US$384m, 5.5%) is
seeing good traction from BFSI, Retail-CPG and Healthcare. Few deals involve
rebadging of clients’ employees; hence, margin benefit due to currency
depreciation would be lower-than-expected. Portland acquisition resulted in
one up-selling opportunity.
􀂄 Unlikely to spring negative surprise on guidance: Due to cross-currency
headwind, the performance in Q1FY13 will be in-line with the guidance. The
management could calibrate guidance (by 0-1% downward) to adjust the crosscurrency
movement. However, our discussion with the management didn’t hint
for the same.
􀂄 Currency depreciation gives room for the wage hike: The currency movement
has been supportive for margins despite headwind from cross-currency. The
management is likely to give a wage hike, which was due in Q1FY13. But, the
currency movement will give impetus to the margin. As highlighted (“Time to
BUY” April 24, 2012), the consensus is overlooking margin levers; hence, expect
5-7% upgrade in EPS, post Q1FY13 result.
􀂄 Inorganic growth – Time is more appropriate now: Management cited urgency
for inorganic route to build non-linear momentum. The size of acquisition is
likely to be at US$100-200m.
􀂄 Valuation and Recommendation – BUY with target price of Rs2,940: The
management continues to maintain their back-ended growth commentary inline
with global tech majors. The valuation comfort and low expectation leaves
little room for a negative surprise; hence, retain “BUY”.