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-environment with 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 and Infrastructure Management Services (IMS, 7% of revenue) among offerings gathering momentum
· Large deal wins, client mining (focus on 45 Star Accounts with USD 100 mn revenue potential, Q3FY13: 12) and broadening of client base (~160 clients signed in last 2 years) remain key 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 BUY with target price of Rs 3,602 (16x FY15E EPS of Rs 225) which implies 25% upside from CMP 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.