Infosys On the road lesstravelled :Prabhudas Lilladher,

We interacted with Infosys (Mr. Sandeep Mahindroo – IR Head) to understand the
demand environment and road-map of new strategic initiatives. Infosys is
undertaking cost optimization, improving sales effectiveness and focusing more on
the traditional Business IT. We expect these initiatives to drive earnings momentum
in the near term. We retain our “BUY” rating.

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 Offshore‐Onsite mix – Driving margins with a prudent offshore drive: Infosys is
driving prudent offshoring (G&A, AM/IM/BPO/ etc). We see the effort to start
bearing fruits and solve its two‐pronged problem: 1) Lower dependence on
low‐margin onsite business 2) Visa‐issue (Immigration Bill).
 Continued and increased focus on Business IT  ‐  Tactical v/s Strategic: The
management continues with their long-term strategic goal of increasing nonlinear revenue composition. However, in the near term, they have pegged their
focus on traditional Business IT. We see the deal wins in CY13 as a success of
Infosys’ new tactical approach and expect momentum to get betterin CY14.
 IMS – Bidding with consortium: Infosys has witnessed good traction in IMS. The
management is bidding with its consortium of vendors for only asset-light
(Services only) portion of IMS business. Their consortium partners have taken
over the hardware assets part of the deal. We see the asset‐light approach as
prudent asitshieldsthe earningsfrom currency and interestrate volatility.
 Improvement in deal pipeline: The deal pipeline has seen steady improvement
over the last 4-5 quarters that could be attributed to better macro-economic
environment in US and EU and increased focus on traditional Business IT. Sales
cycle has improved except for selected few verticals like Telecom. We expect
growth rate to get better in CY14 as pipeline and sales cycle witness
improvement.We expect earnings momentum to get betterin CY14.
 Valuation and Recommendation – BUY with target price of Rs 3,900: We
expect new initiatives to bear fruits in CY14, with margin improvement expected
sooner than revenue momentum. Hence, there is a scope of narrowing multiple
gaps with TCS. We reiterate “BUY” rating with a target price of Rs 3,900, 18x
FY15E earnings estimates.