Infosys Ltd - ICICI Securities Fundamental Top Picks for 2015

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Infosys Ltd (INFTEC) Target Price: | 2400 (23% upside)
• Infosys announced the selection of Dr Vishal Sikka, the former SAP
executive board member, as its new Chief Executive Officer and
Managing Director (CEO & MD), effective August 1, 2014, for a period of
five years. Under the new CEO, Infosys is undergoing another strategic
transformation and is broadly emphasising on two themes: 1) renewing
the core business and 2) innovating into new business. Acknowledging
that this transformation is demanding and could stretch, the management
is confident of execution and believes such a company could sustain 15-
18% revenue growth and 25-28% EBIT margins
• The new management emphasised massive embrace of design thinking –
new – in renewing existing offerings such as consulting services, product
engineering & Finacle and committing considerable investments in this
area. Currently, ~8300 entry level and 160+ senior employees have been
trained on design thinking while more could follow. Interestingly, 70% of
US based consultants have been trained on design thinking while 1000
people have been trained on AI/machine learning with 500 being added
every quarter. The company noted that next generation PLM, integration
of physical with digital, is creating opportunities with Infosys starting
three to six such engagements in the last four months. The company is
hiring aggressively in new technologies with headcount up 59% in data
analytics, 31% in infrastructure services, 22% in security, 13% in cloud,
and 4% in digital in the last two quarters. Infosys is adding more feet on
the ground and has added 207 (104 US, 42 Europe, 61 RoW) sales heads
in the last two quarters
• With a cash pile of $5 billion, the company has put in place an active M&A
strategy to augment growth in underpenetrated segments & geographies
• We expect Infosys to report rupee revenue, earnings CAGR of 9%, 14% in
FY14-16E (average 25.6% EBIT margins in FY15-16E), vs. 18%, 12%
reported in FY09-14 (average 28.1%), respectively. Though the earnings
trajectory may improve over time, incoming CEO continues to impress
with his strategic direction. We value Infy at 20x its FY16E EPS of | 120