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:

Views on Yes Bank 1QFY2016 Results: Angel Broking
Views on JSW Steel 1QFY2016 Results: Angel Broking
Views on United Phosphorus Ltd 1QFY2016 Results: Angel Broking
Power Finance Corporation - Cheap valuations factor in concerns - Angel Broking
Federal Bank - Q1FY16 Result Update - Sushil Finance
Bajaj Auto - 1QFY2016 Result Update - Angel Broking
Crompton Greaves - 1QFY2016 Result Update - Angel Broking
Rallis India - 1QFY2016 Result Update - Angel Broking
Views on Maruti Suzuki 1QFY2016 Results: Angel Broking
India Auto: Tyre Segment - Revving up: AnandRathi Research
Views on Ambuja Cement 2QCY2015 Results: Angel Broking
Views on Tech Mahindra 1QFY2016 Results: Angel Broking
Views on TVS Motors 1QFY2016 Results: Angel Broking
India Infrastructure - Reforms signal all systems go! - Religare
Views on Lupin - Updates: Angel Broking
Views on Wipro 1QFY2016 Results: Angel Broking
View on Lupin Limited 1QFY2016 Results: Angel Broking
Views on Bajaj Auto 1QFY2016 Results: Angel Broking
Views on Ceat Ltd 1QFY2016 Results: Angel Broking
View on Sanofi India 2QCY2015 Results: Angel Broking
Views on Eicher Motors 2QCY2015 Results: Angel Broking
Views on HDFC Bank 1QFY2016 Results: Angel Broking
Views on Sun Pharmaceuticals Update: Angel Broking
Views on Infosys 1QFY2016 Results: Angel Broking
Views on Rane Brake Liners 1QFY2016 Results: Angel Broking
Views on Ultratech Cement 1QFY2015 Results: Angel Broking
Views on Lupin - get USFDA approval for Prandimet: Angel Broking
Views on NPPA - Update: Angel Broking
BUY Unichem Laboratories: Anand Rathi Research
Views on Hindustan Media Ventures Ltd 1QFY2016 Results: Angel Broking
Views on Sun Pharmaceuticals: Angel Broking
Views on Dr. Reddys announces the Launch of Memantine Hydrochloride Tablets: Angel Broking
JM Financial buy reccomendation on Shriram Transport Finance Company
Styrolution ABS (India) - Company Update - Angel Broking
KNR Constructions - Road laid for a sustainable drive - Angel Broking
Views on Wipro Digital to Enhance Digital Transformation Capability with Designit: Angel Broking
Views on TCS 1QFY2016 Results: Angel Broking
Views on Tech Mahindra inks strategic pact with PNMsoft: Angel Broking
Views on Infosys signs multi-year agreement with Deutsche Bank: Angel Broking
India Auto sales in June 2015 - Microsec
Alembic Pharma, Lupin & Sun Pharma get approval for Desvenlafaxine Succinate: Angel Broking
Views on Zydus Cadila receives Market Authorisation (MA) from USFDA for Morphine Sulfate ER Tablets: Angel Broking
India Economy Core infrastructure - Sharp recovery in core, may not be sustainable - Anand Rathi Financial Services
Views on Tech Mahindra - Investor Update: Angel Broking
BUY Welspun India - Anand Rathi Retail Research
BUY Persistent Systems - Anand Rathi Research
Alembic Pharmaceuticals - Gets tentative approval from USFDA for Celecoxib: Angel Broking
Views on Tech Mahindra and Circle Health sign 10-year strategic deal: Angel Broking
World financial fears keep Asia firms in holding pattern
India Technology - Tapering growth and volatility weighing on valuations: Anand Rathi Financial Services


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

disclaimer copyright © 2005 - 2014