Infosys – Improving growth trajectory - Religare

US Demand Recovery: Fed 2014e growth est. for US revised to 2.5-2.8%; 60% of revenues for INFO (FY15e revenue growth at 12% vs. 6% in FY13).

2014 is the year of the Dollar: Steady US recovery would accelerate QE3 taper from current levels of US$10bn p.m. We expect DXY to revert to 85 levels, leading to better realizations (INR down 13% in FY14e).

Sharp margin revival: Traditional growth mix impacted margins (down from 30% in FY10 to 23.5% in 1HFY14). Expect wins in ADM (Application Development, and Maintenance, 35% of revenues) to revive margins (FY15e at 26%).

Conservative guidance; room for positive surprise: Management guidance of 10% FY14e US$ growth leaves significant upside potential, especially in the light of current growth trajectory (RCML FY14e 12%, and 14% FYTD).

Narayan Murthy's return leading to re-focus.

Valuation upside: At 16x on FY15 EPS of Rs218, INFO trades at a 25% discount to TCS as well as 15% to its long-term (7-yr) multiple (19x).

Source : Equity Bulls

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