Accumulate Infosys - 4QFY2013 Result Update - Angel Broking

4QFY2013 was yet another disappointing quarter for Infosys. The most disappointing thing in the quarter's results is USD revenue growth being guided at 6-10% for FY2014, which is way below the street's expectation of 12-13%. The range of the guidance is wide which indicates the volatility foreseen by the Management. Also, the company has not put out any EPS guidance for FY2014, which could signify that there is risk towards the operating margin profile going ahead. Owing to the recent steep correction in the company's stock price, we maintain our Accumulate rating.

Quarterly highlights: For 4QFY2013, Infosys reported a revenue of US$1,938mn, up just 1.4% qoq. Excluding Lodestone, the USD revenue grew by just 0.8% qoq. The overall volume growth came in at 1.8% qoq while overall pricing declined by 0.7% qoq. The company's EBITDA and EBIT margin declined by 199bp and 213bp qoq to 26.5% and 23.6%, respectively, due to impact of onsite wage hikes and Lodestone integration charges. The PAT was held up at Rs. 2,394cr, aided by other income of Rs. 674cr (vs Rs. 503cr in 3QFY2013).

Outlook and valuation: The Management commentary indicates that the environment remains challenging and the company continues to see delays in decision making at clients' ends. It indicated at the company witnessing pricing pressure even for typical IT operations kind of services, which are mostly non-discretionary in nature. Over FY2012-14E, we expect USD and INR revenue CAGR of 8.7% and 8.2%, respectively. The company is now highly focused on growth and this may lead to sacrifice in margins in the near term. Infosys' stock price has corrected by ~22% today, which is its highest ever fall in a single trading session in the last decade. At the CMP of Rs. 2,297, the stock is trading at 13.6x and 12.6x its FY2014E and F2015E EPS, respectively, which appears to be attractive compared to its historical valuation. However, huge volatility in quarterly performance is unlikely to fetch Infosys a higher multiple in the near term. We value the company at 13.5x FY2015E EPS of Rs. 183 and maintain our Accumulate rating on the stock with a target price of Rs. 2,465.

Source : Equity Bulls

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