c
 

„V Mostly valued on P/E basis. Some analysts have DCF based targets. DCF is a
bit iffy given high growth trajectory and uncertainty of growth normalization.
Gives more value to a long term perspective w/o adequate consideration to
short/medium term concerns
„V xecommended multiples at 20-22x at present. This seems like above
average range. Is there a case for multiple contraction?
„V Ghat happens to multiples when Infy misses aggressive consensus forecasts?
„V Infy is currently trading at 23x modeled 2012 eps. It trades at 19x
consensus for 2012. Consensus target price implied multiple (on consensus
estimate) is 22x.
„V Ghile the stock looks cheap on consensus 2012 eps forecast, the consensus
forecast is not factoring in margin slide as a result of mostly volume driven
growth + normalization of utilization  big hiring  margin slide on 300 bps 
2012 eps growth

 

„V -ave been trying to grow Europe revenue share to roughly same as US over
the last 2 years. Ghile this has long term benefits, over the next 1-2 years,
x I on Europe investments will be low. This is linked to multiple contraction
question?
„V -ave indicated retail segment as a potential growth area -- long term. Is
there anything on the horizon which is not being considered by forecasts

  

„V Modeled eps is below consensus. Ghile revenue growth of 20% is in line with
consensus, this may not translate to linear eps growth as implied by
consensus eps forecasts. Given their concerns on attrition, lifetime high
utilizations, cost of service delivery will be higher well into 2012 as wage
hikes kick in and also additional hiring will bring down utilizations. The
margin decline will offset good revenue growth.
„V Infy is trading at 23x 2012 EPS modeled. It trades on 19x to consensus eps
for 2012. A 23x multiple for 2012 is high and there is a case for multiple
contraction as the revenue growth forecast for 2012 of 20% is aggressive and
there is potential for greater margin erosion than modeled. At 20x Infy PT is
2,526 which is 9.1% below cmp.
„V -igher costs associated with US/UK visas will dampen margins. This will
begin kicking in -2 2011.


 

„V Infy has already rolled out good wage hikes and their brand as an employer
will give them some traction in dealing with wage hikes. 
„V åew growth areas like telecom, retail, internet platforms etc could drive
growth. Also through the downturn there has been good traction with
revenue growth slowing down to 4.8% at worst in FY2010.
„V -igher utilizations could be a function of efficiency gains on account of Infy¶s
Global Delivery Model (GDM) and might be sustainable thereby headcount
requirement for the growth.
„V Possible cost of delivery gains on account of GDM could keep margins stable.
„V Further strength in US$ could improve margins.
Ã 
 
„V Mgmt has commented that they have seen some early signs of slowdown in
Europe especially in the BFSI in which Infy is the market leader globally as
the financial crisis worsens. As of now they are witnessing good activity
traction in BFSI, retail and manufacturing.

„V They are generally cautious about growth ramp from Europe and do not
forecast any significant pick-up for 1-2 years.

„V Gill continue to invest in Europe in the face of slower growth.

x


  
„V Assumed a revenue growth of 20% for 2012. This is in line with consensus
estimates.
„V xevenue growth will be largely volume driven (16%-18%). Thus triggering
recruitment drive for Infy.
„V åear term growth will come from a pick-up in BFSI, manufacturing, telecom.
Infy is market leader in BFSI and hence stands to gain from the near term
activity pickup in BFSI, hence a case for higher than industry growth. This
however also means that Infy¶s growth will be activity driven rather than
pricing given that this is a bread and butter business and does not command
pricing power.
„V Clients in the US will also be more cost focused and there is a general
sentiment in the US on the type of work being off-shored to Infy being
commodity type of work. Thus pricing improvements are not likely to kick in,
though volume growth will be healthy.
„V Infy to lead growth through 2011-12 because of higher US and BFSI exposure

   
„V India has a 51 per cent market share of the off shoring market.
„V Significant opportunities exist in core vertical and geographic segments of
BFSI and US, and emerging geographies and vertical markets such as Asia
Pacific, retail, healthcare, and government respectively.
„V Development of these new opportunities can triple the current addressable
market, and can lead to Indian IT-BP revenues of USD 225 billion by 2020.
„V åasscom base case industry growth for the off shoring market for India is
13.3% CAGx till 2020.
„V åear term risk is from slowdown in Europe.