CLSA puts buy on Infosys

RESEARCH: CLSA

RATING: BUY

CMP: 2,891

IT spend at Infosys’ top clients is on the rise even as an increase in discretionary spend and deal sizes indicates greater confidence in Infosys’ clients. US continues to lead this uptick with Europe lagging a tad. That said, Infosys is keenly watching the negative macro data points in the US for potential adverse impact on its order book.

Challenges on the supply side are abating and attrition numbers should head down through H2CY10 driving fuller harvesting of the demand. FY12 is unlikely to be an encore of FY09. While acknowledging potential impact to growth in FY12 from another economic slowdown, Infosys’ COO highlighted three key differentiators.

European trends are looking good in the retail and manufacturing verticals. Banking and capital markets remain the key drivers of overall optimism with useful boosters from retail and healthcare as well. Importantly, Infosys maintained that M&A integration spend in financials has gone down and has been replaced by other discretionary elements.

Infosys remains satisfied with the growth in its top clients and also highlighted the increasing revenue per client as a key indicator of Infosys’ mining ability as well as greater confidence at the client’s end. Infosys does not see any one-off element in FY11 growth and believes current revenue trajectory can sustain in FY12 in absence of a Lehmanlike catastrophic event.