HOLD Infosys - Delivers Above Muted Expectations; Upgrade To Hold - Nirmal Bang

CMP: Rs2,804, Target Price: Rs2,860, Upside: 2%

Infosys' 1QFY14 revenue beat expectations led by healthy on-site volume growth, signifying good project starts. Higher employee utilisation rate and rupee depreciation offset the impact of residual wage hikes, leading to flattish margins. This aided net profit to rise 5.7%/2.1% above our/consensus estimates, respectively. While the management continues to be cautious regarding the business environment, we believe key positive signs have emerged over the past couple of quarters, notably a strong YoY increase in on-site volume and rise in employee utilisation rate. We expect Infosys to start showing more consistency in its results going forward, given the above-stated positive factors. We believe the street has adjusted to the "higher revenue growth at the cost of margins" theme that Infosys will have to focus on and do not expect this to impact the valuation. We have thus upgraded the stock to Hold from Sell with a revised target price of Rs2,860 (Rs2,400 earlier) owing to a slight increase in our EPS estimates and a higher PE multiple of 14.5x FY15E EPS (12.5x FY15E EPS earlier).

Source : Equity Bulls

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