- At Infosys, Narayana Murthy's 'brilliant' son Rohan Murty rises, makes deep impactInfosys Ltd share price surges to all-time high in wake of positive quarterly resultInfosys Ltd shares get 'Overweight' ratings as Narayana Murthy provides clarity'Neutral' rating for Infosys Ltd share price, says Credit Suisse
We maintain ‘buy’ on Infosys Ltd with a price target of Rs 4,485. In the near term, we expect a demand revival and increased cost efficiency to drive earnings upside. We base our price target on 19.5x FY15e PE.
We believe that Infosys’ cost-efficiency initiatives could yield margin savings of 300-400 bps in the next few quarters. At our revenue forecast of 14.5% y-o-y in dollar terms, this should give Infosys room to offer 8-10% wage hikes offshore and still report an Ebit margin of 26% (versus 25% in Q3 of FY14).
The company recently stated its intent to operate at industry-leading profitability, but we hope it does not compromise investments in client-facing activities and employee incentives to curb attrition. Infosys is currently under-invested in new growth segments like infrastructure services and BPO, and investing for growth in these segments is necessary for long-term growth.
Reports suggest that Infosys is mulling offshore wage hikes of 5-7% for FY15, to be effective April 2014. Our channel checks suggest that many employees expect wage hikes of at least 8-10%, and a 5-7% average may be below expectations. Employee attrition remains high ahead of seasonal peak for exits. Reported attrition in Q3FY14 touched a high of 18.1% on a last 12-months basis, and quarterly annualised attrition remains high at 21.4%. We are concerned that lower-than-expected wage hikes could result in abnormally high attrition in H1 FY15, impacting revenue acceleration. We view this as a risk to our cyclical recovery assumptions.