Dolat Capital is bullish on Infosys and has recommended accumulate rating on the stock with a target of Rs 3625 in its April 15, 2014 research report.
"Infosys reported revenue decline of 1.2% QQat $2.1bn (Reported currencyrevenues atINR 128bn - DE at INR 130bn). Operating profits were inline as cost optimization drive helped it cover up for weak volumes maintaining OPM above 25%+ (25.5%). Profit were upby 4% QQ at INR 29.9bn better than our estimates of INR 29bn owing to strong other income (up 16% QQ – accounting for 20% of PBT – 18% in FY14)."
"Infy has guided a soft 7-9% CC growth for FY15 which is lower than its growth in FY14 at 11.5%, which further adds to confusion compared for better outlook commentary in terms of demand environment by Industry peers and experts. The management believes that the weak exit quarter and soft ramp up in H1 is the reason of the weak guidance, however, it could be another 'guide-soft-than beat estimates' trap which in our opinion need to be avoided given the better visibility by TCS. We have revised our FY15 Rev/EPS estimates by 5%/ 7%respectively to account for weakerH1 volumes, soft guidance and narrow OPM gains given USD/INR of ` 60.5. We believe the constant upgrade/downgrade has hampered its potential of a serious re-rating and thus the performance would broadly move along with earnings growths."
"We believe the frequent swings in quarterly financial and management commentary keeps on adding the volatility to the stock and earning forecast. We believe the stock may continue to underperform in near term given the weak growth expectancy in FY15 versus peers (guided FY15 to be better year than FY14) which would mean widening growth differential justifying the valuation discount of over 20%. Also, Infy may see further challenges on change in guard which in our opinion may lead to further resentments and KMP's exits in case of unpleasant surprises as has been the case in recent past," says Dolat Capital research report.
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