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Buy Infosys - Target Price Rs. 2900 - Prabhudas Lilladher
Posted On : 2013-02-16 03:47:59( TIMEZONE : IST )
Revenue momentum to get better, Ramp-up scenario improving: Infosys reported organic revenue growth of 4.2% QoQ (incl. Lodestone: 6.3% QoQ) in USD terms. The growth was aided by some of the new deal ramp-ups. However, the company had ~20 transformational deal win over the last three quarters and expected to witness ramp-up over the next 2-3 quarters. The deal wins have still not been fully captured in Q3FY13 performance. Hence, we expect momentum to get better in FY14. We see Q4FY14 guidance of 2.8% QoQ organic growth in USD terms as an indication of the same.
Flexibility in deal structuring - To improve momentum: Infosys has been flexible in pricing to structure the deal. Moreover, recent deals indicate the company being forthcoming to acquire clients' assets and employees to consummate the deal. The macro-environment supports more of these deals. Over the last six months, Infosys has signed few large deals and ramp-up of which would help to accelerate the volume growth.
Margin levers intact - Room for uptick despite headwinds: Despite wage hike, extended furloughs, lower working days and Lodestone drag, it reported EBIT margin decline of 66bps to 25.7%. Q4FY13 will have headwinds like promotions, onsite wage hike and Lodestone payout & integration, which could be mitigated by transformational deals ramp-up along with utilization improvement.
Strong client addition - Not captured in performance: Infosys added highest number of clients among the peers over the last four quarters. However, the quarterly performance didn't add-up to the same. We expect ramp-up of projects from the client win to result in a positive surprise. We expect the ramp-up to start driving the growth.
Pricing environment getting stable: In line with our expectation, the pricing is finally stabilizing. We expect improving business mix, better project execution (FPP) and higher growth from PPS to help withstand some pricing pressure, if there is any. However, we see bulk of pricing negotiation behind for Infosys.
