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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