Buy Infosys at Rs 2114.8 and add on dips to Rs 1924 - Rs 1984 for Target at Rs 2285 in 1 quarter ::HDFC Securities

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In our Q2FY15 results review dated Oct 13, 2014, we had recommended investors to buy Infosys at the then CMP of Rs. 3889 and average it on dips to Rs. 3498-3615 for
our price target of Rs. 4313 (cum-bonus price) over the next quarter. Thereafter, the stock touched a low of Rs. 3718 on Oct 21, 2014 and subsequently met our price
target on Nov 25, 2014. It touched a new high of Rs. 4401. The stock became ex-bonus on Dec 02, 2014 (1:1 bonus). Currently, it is quoting at Rs. 2114.8.
Infosys Q3FY15 USD revenue growth was in line with our expectations, while operating profit & PAT growth were above estimates, aided by higher operating margins on
the back of improvement in utilization, rupee tailwind & effort mix shift towards offshore. Volume growth of 4.2% Q-o-Q was a positive surprise. The company
maintained its USD revenue growth guidance of 7-9% for FY15, which was another positive surprise, as the street had expected that company would cut the upper end of
the guidance due to cross currency headwinds. However, the guidance retained is at currency rates prevailing as on September 30, 2014.
The USD revenues grew by 0.8% Q-o-Q to USD 2218 mn (2.6% growth in constant currency - CC). Volume growth at 4.2% Q-o-Q was encouraging given the furloughs
impact of about 2-3 days during the quarter. This was the highest growth in the past 12 quarters. Onsite volumes were up 3.7% Q-o-Q, while offshore volumes increased
by 4.4% Q-o-Q. However, blended pricing declined by 3.4% Q-o-Q due to cross currency headwinds & pressure on commoditized services. Onsite pricing was down 2.5%
Q-o-Q, while offshore pricing declined by 4.1% Q-o-Q. In INR terms, the revenues grew by 3.4% Q-o-Q, aided by rupee depreciation during the quarter. Operating profit
increased by 4.8% Q-o-Q, while OPM improved by 37 bps Q-o-Q to 28.7%. EBIT increased by 5.9% Q-o-Q, while EBIT margins rose 63 bps Q-o-Q to 26.7%, which was
better than our expectations. Margin expansion was aided by effort mix shift towards offshore, improvement in utilization & rupee depreciation during the quarter.
Reversal in provision for doubtful debts (provisions in the previous quarter were Rs.540 mn (0.4% of revenues) whereas there was a net reversal of Rs.420 mn (0.3% of
revenues) in 3QFY15 - this resulted in decline in the SG&A expenses) has also aided margin for the quarter. PAT increased by 5% Q-o-Q, while PAT margins improved by
35 bps Q-o-Q to 23.6%. EPS for the quarter stood at Rs. 56.8 vs. Rs. 54.1 in Q2FY15.

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