Buy Infosys at a target price of Rs 3066: Nitin Prakash Daga

Nitin Prakash Daga, Microsec Capital Ltd, talks about Infosys.

We adopted a comparable valuation method to value INFY based on Price-to-Earnings (P/E) multiples. Historically, the company traded on a five year average P/E multiple of 26.6x. This reveals a premium over the peer group average P/E of 25.4x for the same period. In the longer run, we expect the company to trade at a discount over the peer group average P/E based on its underperformance vis-à-vis TCS. With this, we anticipate the P/E gap, of INFY and Industry to stand at -0.5x in subsequent years. Consequently, to arrive at a target P/E multiple for INFY we applied a 19% discount to five year average P/E of peer group. Deducting the discount, this resulted in a targeted P/E multiple of 20.1x for the company, which on FY2013E EPS of Rs 152.68, reflects a target price of Rs 3066, inclusive of dividend payments, for the stock. Our target price translates a 39.7% upside over INFY’s current stock price. On an annualized basis, this translates into returns of 24.7%.