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Infosys has slipped over 1% in intra-day deals on Friday to Rs 2,077 levels on the Bombay Stock Exchange (BSE), a day after the company held its first analysts meet under the new chief executive officer, Vishal Sikka.
Besides emphasising the need to expand headcount in newer technologies like big data and analytics, cloud and digital, Sikka also highlighted the need to renew the core (traditional services) and innovate in new businesses.
Infosys is aiming to transition large scale of over 165,000 employees to an approach based on design thinking and innovation. This is only possible with a culture of learning that can viably up-skill the capabilities of employees in reasonably quick time, analysts feel. Towards that end, Infosys' ability to train 14,000 employees at one go in the Global Education center at Mysore is a key advantage and it has already trained ~8000+ employees on design thinking.
Here is how top brokerages and research houses across the country interpret the statements:
Motilal Oswal Research
Rating: Buy
Target: Rs 2,500
Without any exceptions, the company is looking at renewing all its existing services - Consulting Services, BPO, IMS, Application Development, Testing, Product Engineering; and even its PPS arms EdgeVerve and Finacle. Apart from this, it seeks to innovate around Design thinking, Innovation services, Infosys Information Platform (IIP) and Start-ups and Partnerships.
On a large scale, the transformation tasks are by no means a quick fix, and will take time to materialise. We expect Infosys to grow its revenues at a CAGR (compounded annual growth rate) of 11.2% over FY14-17E and EPS at a CAGR of 14.2% during this period. We roll over our target to FY17E. Our revised price target of Rs 2,500 discounts FY17E EPS by 18x. Maintain Buy
Kotak Securities
Rating: Accumulate
Target: Rs 2,239
With these new initiatives, Infosys is targeting to achieve growth rates of 18%-20%, with margins of 25% - 28% on a sustainable basis, over the long term. We expect the company to end FY15 with a 7% USD revenue growth in FY15 and 12% in FY16. We assume the exchange rate to be at Rs.59.5 / USD in FY15 and Rs.60.25 / USD in FY16. We expect margins in FY15 and FY16, to be better than FY14.
Salary hikes, investments in new services and increased S&M expenses will likely be more than set off by benefits from utilization increases, higher off-shore content, new services and cost rationalisation initiatives. Our target price stands at Rs 2,239. We recommend buying the stock at declines, post the recent run-up. ACCUMULATE.
Nirmal Bang Institutional Equities
Not Rated
As has been the case in previous such meets, the management did not get into any specific discussion on future financials nor did it come up with any material insights that were not shared with the public before. However, the presentations were slightly more granular than the ‘vision’ enunciated by the new CEO in the September 2014 quarter results conference-call as well as his interactions with investors at various brokerage conferences since then. The specifics have been left for the yearly guidance coming up in April 2015.
The meet helped investors get an insight into the thinking of the new management on how to take the business forward. It gave a qualitative feel about the work being done by the company with clients in different verticals aligned with the new CEO’s strategy of ‘Renew-New’ – ’renew’ing technology investments made by clients in the past and making them relevant to today’s market place and addressing ‘new’ problems of clients. What stood out was the positive body language of the new management versus the cautious optimism of the promoter managers preceding them.
Emkay Global
Rating: Buy
Target: Rs 2,100
Investments in the next generation technologies ( Design Thinking, Artificial intelligence, Automation etc) imperative to position Infosys better for the future as well as to regain lost ground in the traditional business. Infosys continues to stick to the deadline that NRN had set for catch up to industry growth rate which means that Infosys expects to achieve industry level growth by June'16 time frame.
Investment in sales continues while attrition rate to moderate driven by the recent steps; Infosys continues to guide for EBIT margins in the range of 24-26% in the near term. Remain positive on the company however believe that ~25% outperformance V/s TCS since Jun'14 with valuation discounts to TCS at ~13-15% one year forward P/E V/s ~25% earlier should drive a stall in stock outperformance in the near-term
Centrum Broking
Rating: Buy
Target: Rs 2,680
Cohesion within the senior management team was evident during our interaction with them on investor day. Other visible signs were steps towards higher employee engagement and small but significant changes to both internal organisation and sales performance measures. We could also see that Infosys was again focused on creating customer value.
We think margin pressure from new investments will be limited as these are not investments in transition for large deals but investments in internal capabilities. We expect the rerating to continue gradually as Infosys catches up with peers
over FY16 and retain our previous estimates. We maintain Buy rating and increase our target multiple to 18x (expecting Infosys to further narrow the discount to TCS) with a target price of Rs 2,680 based on 18x Dec-16E EPS (Vs 17x Sep-16E EPS earlier). Key risks include near-term margin pressures as a result of investments being more substantial than our estimate and significant rupee appreciation.
