Reduce Infosys Tech, target of Rs 1400: IIFL
IIFL has maintained its reduce rating on Infosys Technologies with a target of Rs 1400 in its report dated June 5, 2009.
“Infosys’s current valuations offer limited upside, in our view, as they overlook the lack of growth till FY11 (we expect -1.5% PAT cagr until that year) and structural problems (overwhelmingly linear business model, high base). Any upside surprise from a recovery in 2HFY10 or growth in FY11 (led by pent-up demand) is also minimal; as our estimates already build in a CQGR (USD revenue) of 1% in 2HFY10 and 4.5% in FY11 vs -1.5% in 1HFY10. Our analysis of its recent annual report also highlights the deterioration in its performance metrics: ROE down from 44% in FY05 to 37% now; margins ex-currency benefits down 500bps in 4QFY09 YoY and upscaling via its consulting business continues to suffer from losses and lack of scale (PAT loss of USD 13 million and only 304 consultants in FY09). In addition, the rupee’s appreciation (7% vs USD qtd) and continued pricing pressures will be an overhang on earnings. We maintain Reduce and revise our target price to Rs 1400 (based on 14x FY11 eps). Financial Summary Y/e 31 Mar FY08A FY09A FY10ii FY11ii,” says IIFL’s research report.