Hold Infosys Technologies; target of Rs 3125: Nirmal Bang

Nirmal Bang has recommended hold rating on Infosys Technologies with a target of Rs 3125 in its October 15, 2010 research report.



"Infosys Technologies, Q2 FY11 results reflect the improvement in the recovery of demand from the US and the Europe. The company is seeing an improved traction in Retail, BFSI and Energy & Utility verticals among its US clients. Also, Europe is witnessing an uptick in demand with an incremental spending in Manufacturing, BFSI and Retail segments. In Europe, manufacturing has shown a healthy growth particularly in Switzerland, Germany and France as companies attempt to achieve cost efficiency through better systems. During the quarter, growth was led by Retail segment where in Infosys caters to 8 out of the top 10 retailers in US and 5 out of the top 10 retail companies in Europe."







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"The company has won 9 transformational which few are in excess of USD 100 million. Attrition has declined on a sequential basis, but it still remains a concern and Infosys plans to hire around 40,000 employees during FY 2011 to build up capacity in expectation of an increased demand in future. Overall, the Management remains optimistic in short term and have a cautious view over the long term as budgets for FY 2012 are yet to be finalized. The exchange rate remains a major concern as the recent appreciation of rupee will impact the company's profitability in near term."



"Infosys Technologies Q2 FY11 revenues grew 12.1% QoQ to Rs 6947 crore beating its guidance of Rs 6626 on the back of improving demand. Revenue was above our estimates because of higher volumes & an increase in pricing during the quarter. EBITDA margin improved to 33.3%. (+167 bps QoQ) The increase in topline was reflected in the improved EBITDA margins. PAT increased by 16.7% QoQ to Rs 1737 in Q2 FY11 because of improvement in the EBITDA margin and foreign exchange gains. PAT exceeded our estimate reflecting higher-than-expected revenues."



"At the current price of Rs 3076, Infosys is trading at a PE of 25.34x on FY 2011 EPS & 21.66x on FY 2012 estimated EPS. Based on our estimated EPS of Rs 142.02 for FY 2012 and our target PE multiple of 22.0x we arrive at a target price of Rs 3125 per share for Infosys. Therefore, the company looks fairly valued at current levels and doesn't offer much upside from current levels in near term. Considering the improved scenario for the IT sector, we recommend to HOLD the stock Infosys," says Nirmal Bang research report.



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