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Buy Infosys with target of Rs 3,602/sh: Axis Capital

India Infoline News Service | Mumbai | March 28, 2013 16:16 IST

Axis Capital has initiated a buy on Infosys with a target price of Rs 3,602 per share, a 25% upside from its current price of Rs 2,877. The brokerage expects Infy's attempts to improve volumes over the past few quarters to continue to bear fruits

Key takeaways from our interaction with Basab Pradhan(Sr. VP Head of Global Sales, Marketing and Alliances Member of Executive Council)and Sandeep Mahindroo(Principal Investor Relations):

No material change in macro-environmentwith long decision-making cycle for large deals.However, there is uptick in Request For Proposals (RFPs)and deal pipeline is better YoY

Continental Europe(13% of revenue),Australia(over 5% of revenue) among geographies andInfrastructure Management Services(IMS, 7% of revenue) among offeringsgathering momentum

Large deal wins, client mining(focus on 45 Star Accounts with USD 100 mn revenue potential, Q3FY13: 12) andbroadening of client base(~160 clients signed in last 2 years) remainkey growth strategies

CY13 budgets finalized on time, clarity on allocations awaited:CY13 budgets were mixed BFSI (down) and Manufacturing/ Retail (flat with positive bias).Manufacturing and Retail vertical has seen some pockets of discretionary spend

Outlook and valuation:Initiatives taken by Infosys over past few quarters to improve volumes continue to bear fruits (with 8 large deals signed in Q3). Hence we expect Infosys to deliver a much better growth in FY14E vs. FY13. Rise in discretionary spend to drive earnings/ multiple upgrades.

Maintain BUYwith target price of Rs 3,602 (16x FY15E EPS of Rs 225) which implies 25% upside fromCMP of Rs 2,877.The stock trades at 15x FY14E EPS of Rs 196 and 13x FY15E EPS of Rs 225.

Our estimates are based on INR/USD of Rs 56.5 for FY14E and Rs 58.5 for FY15E.

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