Buy stocks of Infosys; target Rs 2530

“Infosys (For 1QFY2013) reported yet another disappointing quarterly result, broadly underperforming on all fronts. The most disappointing thing in Infosys result was revision of FY2013 USD revenue growth guidance downwards to at least 5% from 8-10% earlier, tad lower than our estimate of 6-8%. In addition, the company has stopped issuing quarterly guidance citing uncertainly in demand environment which is discomforting. The stock has got corrected significantly.”

“For 1QFY2013, Infosys reported revenue of US$1,752mn, down 1.1% qoq, impacted due to 3.7% qoq decline in pricing and a hit of US$15mn as a one-time reversal in a transformation project from a European utilities client. EBITDA margin declined by 181bp qoq to 30.8%, despite having benefits from ~8% qoq INR depreciation against USD because operating margins were impacted adversely by pricing decline (co attributing the decline to change in business mix with some sporadic pricing resets in FSI) and US$15mn of revenue reversal on account of a project cancellation.”

“Management has given a disappointing FY2013 guidance of atleast 5% yoy growth from 8-10% earlier, tad lower than our estimate of 6-8%. Post 1.1% qoq decline in USD revenue in 1QFY2012, the company requires ~3% ask rate in 2Q-4QFY2013 to achieve 5% growth in FY2013, which, at current scenario of company’s performance, looks a bit stretched. Hence, we expect USD and INR revenue to post a CAGR of 7.1% and 11.2%, respectively over FY2012-14E. On the EBIT margin front, for FY2013, the management expects it to go down by 50-100bp yoy in FY2013 which does not factor in the wage hike. Over FY201214E, we expect a CAGR of 11.4% and 9.5% in EBIT and PAT, respectively. At the CMP of Rs 2,265, the stock is trading at 14.0x FY2013E and 13.0x FY2014E EPS. We maintain Accumulate rating on the stock with a target price of Rs 2,530 but in the near term though we do not expect Infosys to give considerable absolute upsides,” says Angel Broking research report.