Kotak reiterates 'Buy' on Infosys for target of Rs 3100
Kotak Securities has reiterated 'Buy' recommendation on Infosys Technologies after the company announced lower-than-expected first quarter results. The brokerage expects the stock to touch target price of Rs 3100 in next 12 months.
By ET Bureau |
MUMBAI: Kotak Securities has reiterated ‘Buy’ recommendation on Infosys Technologies after the company announced lower-than-expected first quarter results. The brokerage expects the stock to touch target price of Rs 3100 in next 12 months.
Infosys’ reported lower-than-expected 1QFY11 results with revenues of US$1,358 mn (+4.8% qoq, 21% yoy) and net income of Rs14.9 bn (-5.2% qoq, -2.6% yoy).
On the positive side, the company raised FY2011E US$ revenue growth guidance to 19-21% from 16-18% earlier. Infosys has raised FY2011E EPS guidance to Rs112.2 to Rs116.7, from Rs107-111 earlier.
“We are confident of our projected 26% US$ revenue growth; confidence emanates from continued ramp up of regulatory compliance and M&A integration deals and ramp of G-1000 accounts added in the previous year. We will take stock of our margin assumption (50 bps decline assumed in our model versus company guidance of 150 bps decline for FY2011E), though our forecast of Rs125 and Rs151 is unlikely to be revised downwards.
We reiterate our BUY recommendation on the stock. Appreciation of the Rupee against the US$ and high-than-expected impact of deterioration of European economies remains the key risk to our call.
Infosys is trading at 22.6X FY2011E and 18.7X FY2012E earnings based on consensus numbers. These valuations have to be viewed against the backdrop of continued beat and raise potential. Our target price of Rs 3100 is based on the Gordon DDM model and is based on 15% earnings growth for six-seven years (or 20% for four- five years), followed by 6% growth to perpetuity (long term growth of IT services spending) using discount rate of 12%. We have taken long term sustainable ROE assumption of 30% (core ROE of 80%+ currently, excluding excess cash on books),” the brokerage said.
Infosys’ reported lower-than-expected 1QFY11 results with revenues of US$1,358 mn (+4.8% qoq, 21% yoy) and net income of Rs14.9 bn (-5.2% qoq, -2.6% yoy).
On the positive side, the company raised FY2011E US$ revenue growth guidance to 19-21% from 16-18% earlier. Infosys has raised FY2011E EPS guidance to Rs112.2 to Rs116.7, from Rs107-111 earlier.
“We are confident of our projected 26% US$ revenue growth; confidence emanates from continued ramp up of regulatory compliance and M&A integration deals and ramp of G-1000 accounts added in the previous year. We will take stock of our margin assumption (50 bps decline assumed in our model versus company guidance of 150 bps decline for FY2011E), though our forecast of Rs125 and Rs151 is unlikely to be revised downwards.
We reiterate our BUY recommendation on the stock. Appreciation of the Rupee against the US$ and high-than-expected impact of deterioration of European economies remains the key risk to our call.
Infosys is trading at 22.6X FY2011E and 18.7X FY2012E earnings based on consensus numbers. These valuations have to be viewed against the backdrop of continued beat and raise potential. Our target price of Rs 3100 is based on the Gordon DDM model and is based on 15% earnings growth for six-seven years (or 20% for four- five years), followed by 6% growth to perpetuity (long term growth of IT services spending) using discount rate of 12%. We have taken long term sustainable ROE assumption of 30% (core ROE of 80%+ currently, excluding excess cash on books),” the brokerage said.
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