Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us    
Google
Web www.equitybulls.com
Union Budget
Budget 2011-2012 Home
Industry Expectations - Budget 2011-2012
Industry Reactions - Budget 2011-2012
Budget 2010-2011
Budget 2010-2011 Home
Industry Expectations - Budget 2010-2011
Industry Reactions - Budget 2010-2011
Contributor's Corner
Bonanza Portfolio
Hemant K Gupta
Krish Bhatt
S A A R T H I
Trinity Investments
Exchange Information
BSE 2009 Holidays
NSE 2009 Holidays
Investor Guide
Depository & Dematerialisation
Grievance Redressal
Investor Guide
SEBI
Trading of Securities
Transfer of Securities
Your Rights
Budget 2009-2010
Budget 2009-2010 Home
Industry Expectations - Budget 2009-2010
Industry Reactions - Budget 2009-2010
Interim Budget 2009-2010 Home
Industry Expectations - Interim Budget 2009
Budget 2008-2009
Railway Budget 2008-2009
Industry Expectations - Budget 2008
Union Budget 2008-2009
Highlights of Budget 2008-2009
Summary of Budget 2008-2009
Industry Reactions - Budget 2008
IPOs
Current IPOs
Past IPOs
IPO Subscription
Mutual Funds
Gold Exchange Traded Fund
MF Unique Holding
Forthcoming Dividends
ELSS Schemes Comparison
Tax Plans
New Fund Offers
Research
Arbitrages
Equity
Market Whispers
Tax Planning
Home
Equity Linked Savings Scheme
Post Office MIS
9% GOI Senior Citizens Savings Scheme
8% Savings (Taxable) Bonds
Kisan Vikas Patra
National Savings Certificate
Public Provident Fund
Research

| More

Infosys - A Case Of Great Expectations - Nirmal Bang

Posted On: 2013-03-31 20:33:20

Infosys' stock has rallied nearly 25% over the past two-odd months following betterthan-expected 3QFY13 results. In our view, such a steep upward move implies great expectations of the street regarding an improved performance in FY14. While we expect Infosys to increase its revenue at a faster rate in FY14, we believe it will come at the cost of margins, given the need to show flexibility in pricing and deal structuring; 3QFY13 EBIT margin was at a 22-quarter low and we have factored in 113bps YoY EBIT margin decline in FY14E. We expect this to impede earnings growth and have factored in 7.6% EPS CAGR over FY13E-FY15E; the current valuation of 14.9x FY15E EPS is not cheap and under-performance against high expectations could trigger a correction. We have retained Sell rating on Infosys with a revised TP of Rs2,685 (Rs2,310 earlier), rolling over our valuation multiple to FY15.

Stock surge implies great expectations, revenue growth seen at the cost of margins: Infosys' stock has surged nearly 25% over the past two-odd months following better-thanexpected 3QFY13 results. In our view, such a steep move implies great expectations of an improved performance in FY14. While we expect Infosys to grow its revenue faster in FY14, it will be at the cost of margins because of a highly competitive market and the need to show flexibility in pricing and deal structuring (read make upfront investments).

Margins to remain under pressure; 3Q EBIT margin at a 22-quarter low: As we have stated above, while we expect FY14E revenue growth to be better than FY13E (13.6% versus 6.5%), we believe it will come at the cost of margins, given the need to be more flexible on pricing and deal structuring. We believe it is a trade-off, an 'either-or' situation as regards revenue growth and margins, and in the wake of revenue market share loss over the past many quarters (refer Exhibits 1 and 2), we expect Infosys to opt for the former. It should be noted that while 3QFY13 revenue growth was impressive, EBIT margin was at its lowest level since 1QFY08 (22 quarters). We expect 113bps fall in FY14E EBIT margin (25.1% versus 26.3% in FY13E), led mainly by higher employee costs.

Financial services budgets likely to shrink in CY13/FY14: Infosys sees IT budgets in the key financial services vertical shrinking in CY13/FY14 owing to muted growth prospects of its clients across all major segments - banking, capital markets and insurance. Greater focus is likely on run-the-business initiatives for cost savings. In our view, this could lead to some pricing pressure in this vertical. Given that financial services contributed 33.7% to 3QFY13 revenue, by far Infosys' largest vertical, this could prove to be a headwind for FY14 revenue growth.

Margin pressure to lead to tepid EPS CAGR of 7.6% over FY13E-FY15E, retain Sell: While we expect higher revenue growth in FY14 for Infosys compared with FY13, we expect the pressure on margins to lead to a tepid EPS CAGR of just 7.6% over FY13EFY15E. The stock currently trades at 14.9x FY15E EPS, which in our view is not cheap in the light of slow EPS growth expected by us. We believe the possibility of disappointment on high expectations could trigger a stock price correction. We have retained our Sell rating on the stock with a revised target price of Rs2,685 (Rs2,310 earlier), rolling over our valuation multiple to FY15.


Source: Equity Bulls

Click here to send ur comments or to feedback@equitybulls.com


Disclaimer:The article above is a gist / extract of the original report prepared by the research firm / brokerage firm. This article is not to be considered as an offer to sell or a solicitation to buy any securities. This article is meant for general information only. www.equitybulls.com, its employees or owners or the research firms, its employees or owners won't be responsible for any liability that may arise from information, errors or omissions in these articles. www.equitybulls.com or its employees or owners / the research firms or its employees or clients or owners may from time to time hold positions in securities referred in this article. For detailed research reports, please contact the concerned research firm directly.





Other Headlines:

Majesco Ltd - Well-placed to Leverage Conducive Industry Tailwinds - Reliance Securities
HCL Technologies - Event Update - Automation Focus a Key Differentiator - Reliance Securities
Aurobindo Pharma - 1QFY2017 Result Update - Angel Broking
HOLD India Cements - Subdued quarter; prices to recover: AnandRathi Institutional Research
Cement - 1QFY17 Results Review - Robust performance continues on cost benefits - Reliance Securities
NTPC 1QFY17: Result Review - In line with our expectations - Maintain BUY - Reliance Securities
KNR Constructions - 1QFY2017 Result Update - Angel Broking
BUY NRB Bearings - Margin expansion in Q1 leads to robust profitability: AnandRathi Institutional Reserach
BUY AIA Engineering - Margins likely to hold: AnandRathi Institutional Reserach
BUY Vivimed Labs - Better pharma growth, lower interest cost drive earning - Anand Rathi
Radico Khaitan - 1QFY2017 Result Update - Angel Broking
BUY KNR Constructions - Strong beginning, move toward a high-growth trajectory; AnandRathi Institutional Research
Dishman Pharmaceuticals - 1QFY2017 Result Update - Angel Broking
BUY Ahluwalia Contracts India - Steady growth intact: AnandRathi Institutional Research
BUY JK Lakshmi Cement - Strong start; growth set to endure: AnandRathi Institutional Research
Ahluwalia Contracts India Ltd - 1QFY17 Result Update - BUY - Healthy Performance Continues - Reliance Securities
Sun Pharmaceuticals - 1QFY2017 Result Update - Angel Broking
BUY MRF - Outstripping yet again: Anand Rathi Institutional Research
Bajaj Electricals - 1QFY2017 Result Update - Angel Broking
Lupin - 1QFY2017 Result Update - Angel Broking
Cadila Healthcare - 1QFY2017 Result Update - Angel Broking
BUY Jyothy Laboratories - With multiple triggers, outlook 'bright': Anand Rathi Institutional Research
IPCA Laboratories - 1QFY2017 Result Update - Angel Broking
Cipla - 1QFY2017 Result Update - Angel Broking
HCL Technologies - 1QFY2017 Result Update - Angel Broking
Tech Mahindra - 1QFY2017 Result Update - Angel Broking
Linc Pen & Plastics - 1QFY2017 Result Update - Angel Broking
Garware Wall Ropes - 1QFY2017 Result Update - Angel Broking
Union Bank of India - 1QFY17 Result Update - Better show on operating front, asset quality remains weak - Reliance Securities
Colgate Palmolive (India) - 1QFY17 Result Update - Volumes Recover but at a Cost - Reliance Securities
Views on Lupin Limited 1QFY2017 Results: Angel Broking
BUY Mangalam Cement - Stellar operational performance; AnandRathi Institutional Research
BUY Majesco - Soft quarter, profitability improving: AnandRathi Institutional Research
Views on Bank of Baroda 1QFY2017 Results: Angel Broking
BUY Aegis Logistics - Strong throughput volumes, H2 to be better: AnandRathi Institutional Research
Views on Ipca Laboratories Ltd 1QFY2017 Results: Angel Broking
Views on State Bank of India 1QFY2017 Results: Angel Broking
Views on Sun Pharmaceutical Industries Limited 1QFY2017 Results: Angel Broking
Shree Cement: 1QFY17 Result: FIRST CUT - Reliance Securities
Views on Cipla Ltd 1QFY2017 Results: Angel Broking
Views on Union Bank of India 1QFY2017 Results: Angel Broking
United Phosphorus - 1QFY2017 Result Update - Angel Broking
Cement - Dealers check: Moderate price correction on seasonal impact - Reliance Securities
Mangalam Cement: 1QFY17 Result: FIRST CUT - Reliance Securities
J.K. Cement: 1QFY17 Result: FIRST CUT - Reliance Securities
TV Today Network - Initiating Coverage - Go with the market leader - Angel Broking
Voltas - 1QFY2017 Result Update - Angel Broking
Indoco Remedies - 1QFY2017 Result Update - Angel Broking
GlaxoSmithKline Pharmaceuticals - 1QFY2017 Result Update - Neutral - Angel Broking
Alembic Pharmaceuticals - 1QFY2017 Result Update - Neutral - Angel Broking


Website Created & Maintained by : Chennai Scripts
West Mambalam, Chennai - 600 033,
Tamil Nadu, India

disclaimer copyright © 2005 - 2016