Better-than-expected quarter
Stemming of market share
losses brings back confidence
on parity with industry growth
Action: Outlook improves, but 17% rally caps material upside
INFO 3Q results surprised positively on revenue growth, post five quarters
of disappointments. The results provide comfort, in our view, on 1) doubledigit
growth possibility in FY14F (vs 5% organic growth in FY13F) on
stemming of market share losses in cost-efficiency segments; and 2) likely
bottoming out of margins in 4Q, post five consecutive quarters of margin
declines. The increased comfort on growth and margins lead us to raise
our valuation multiples to 15x 1-yr fwd EPS (vs 13x earlier) and our target
price to INR2,900. The 17% rally in INFO post results precludes us from
upgrading INFO to Buy. We maintain our Neutral rating and prefer TCS
over INFO on greater revenue predictability.
Catalysts: Higher-than-anticipated growth or discretionary pick-up
3Q: Growth surprises; margin guidance disappoints
INFO organic USD revenue growth at 4.2% (vs est. of 1.9% q-q)
surprised, driven by pricing improvement of 1.8%, while being in line with
expectations on volume growth (1.5%). Margins did not reflect the impact
of improved pricing and are likely to decline further by ~100bp q-q,
according to management. We expect flattish margin trends over FY13-
15F at ~26% levels, with utilization remaining the key lever.
Valuation: EPS raised by ~4/7% in FY14/15F, TP raised to INR2,900
We expect organic USD revenue CAGR of 11% (vs 10% earlier) and EPS
CAGR of 10% (vs 7% earlier) over FY13-15F. Our TP rises to INR2,900
(vs INR2,300 earlier) on the raising of our target multiple to 15x 1-yr fwd
and 4%/7% increases in EPS estimates for FY14F/15F.
No comments:
Post a Comment