Buy Infosys; target of Rs 2945

“Infosys reported a ~27% YoY growth in net profit for the fourth quarter, but forecast much lower-than-expected US dollar revenue growth for FY’13E, warning FY’13E’s challenging time to slower growth in the global economy. It reported a PAT of Rs23,160 mn for the January-March quarter, up ~27% YoY, but down ~3% sequentially. Revenue for the 3M period was up ~22% from a year ago at Rs88,852 mn. Revenue QoQ was down ~5% in Q4FY’12. FY’12 revenue stood at Rs3,31,248 mn which is typically a muted quarter for IT exporters like Infosys. Annual PAT stood at Rs84,960 mn.”

“Infosys Ltd, India’s second largest software exporter posted a ~22% YoY rise in its revenue (Rs88,520 mn) for Q4FY’12 and ~27% YoY rise in its profit (Rs23,160 mn) rise in quarterly profit, but forecasted lower-than-expected revenue growth for the current fiscal year FY’13E, due to an uncertain global economy and currency volatility. The company has also suffered delay contract launches and seen volume decline by ~0.9%+, utilization rate down by ~69%. However, there was silver lining in the area of contract pricing, which saw a YoY growth of ~4.7%+. The company signed 5 large deals but no such transformational deals in the Q4FY’12. The company commented that it has been a huge volatile quarter; March saw one of the biggest slip-down due to delays in contract launches and ramp downs in a few BFSI clients. Visibility for the entire year now is only 65%+ in clients’ contracts. Due to global issues, there is a lack of client confidence. Given the present global stance, we expect some contraction in client’s budgets which is not clarified.”

“Infosys saw an enhancement of margins on both operating and net margin aided by its BPO business. Operating margin rose by 100bps to ~30% at Rs26,470 mn aided by other income of Rs6,520 mn and USD/Rs50.88, while net margin also expanded by 100 bps to ~26% at Rs23,160 mn. At CMP of Rs2,402, the stock trades at a P/E & P/BVPS of ~13.5x and ~3.7x respectively, using FY’13E EPS & BVPS. Hence, we upgrade rating to BUY from earlier HOLD, re-affirming on our ETP of Rs2,945 (upside potential of ~22% from current levels), factored over a P/E & P/BVPS of ~16.7x and ~4.6x, using FY’13E EPS of Rs176 and BVPS of Rs641,” says R K Global research report.