Friday, December 5, 2014

Analyst Meet Note on Infosys with a Buy recommendation and Target price of Rs.2,417

Analyst Meet Note on Infosys with a Buy recommendation and Target price of Rs.2,417 (12 months).
Analyst Meet Note – Gearing to regain leadership
In June 2013, Mr. Narayana Murthy had outlined guidelines for the company to return to industry leading growth. The company has reinforced the same and is confident of its strategy of achieving the objective of industry leading growth (around 15-18%) in the medium to long term with 25-28% EBIT margins. That would imply attaining the results by FY2017. However, a detailed plan for the same in terms of investments required to bring about this transition, is expected to be outlined only in April 2015. One of the key levers of the same will be employee productivity which stands at 75.2% as of 2QFY2015, leaving scope of improvement.  Apart from organic growth, in terms of acquisition, the key focus of the company is on small innovative companies rather than acquiring scale in yesterday’s technologies. Segments in which the company will be looking to acquire include-Artificial Intelligence, Automation, Internet of Things, Collaboration and Design.  Going forward, the company has maintained its future USD revenue growth guidance for FY2015 at 7-9% and EBIT margins to be sustained at 25-26% band. Over the medium term, the company has guided towards moving into a trajectory of 15-18% growth rates with EBIT margins of 26-28%. For FY2014-16E, the company is expected to post a sales and EPS CAGR of 10.8% and 11.3%, respectively. On the valuation front, the stock trades at a PE of 17.9x FY2016E earnings, ie. at a discount to its peer like TCS, which we believe can narrow down once the growth picks up. Given the profitability and growth outlook of the company, we recommend a Buy on the stock with a price target of `2,417.
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