Securities firm Jefferies has said earnings downgrade for Infosys, Indias second largest software services exporter, is coming to an end and it is likely to be the stock to watch out for in 2013.
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Jefferies today increased its target price for Infosys to Rs 3,000 per share, and said it maintains a ‘buy’ recommendation on the stock.
According to the investment firm, India’s second largest software services exporter is unlikely to see further earnings downgrades. Infosys reported a 24 per cent year-on-year gain in quarterly profit for the fiscal second quarter ending September. On a sequential basis, net sales rose 2.5 per cent to Rs 9,860 crore, while net profit edged up 3.5 per cent to Rs 2,369 crore. In the June quarter, Infosys had reported Rs 9,616 crore in sales and Rs 2,289 crore in net profit. Analysts said the results were in line with expectations.
Brokerage consensus is close to the worst-case scenario, and expectations have halved from Infosys versus a year ago. Last month, Espirito Santo reiterated its ‘buy’ call on the stock post earnings, saying all known ramp downs are largely over and all planned price negotiations have been completed in the first two quarters.
IDFC Securities has an ‘outperform’ on the stock. Over the last few quarters, TCS and HCL Tech have steadily gained because they have managed to outperform rivals Infosys and Wipro in a challenging environment. TCS expects to end fiscal year 2013 with a growth in excess of 11-14 per cent in contrast to Infosys, which sees dollar sales growth at 5 per cent. However, Hitesh Shah of IDFC Securities told NDTV Profit that the growth rates of bigger companies like TCS and Infosys are likely to converge with each other going forward. "We may see a slight uptick in growth for Infosys and Wipro and a slight downtick in growth for TCS and HCL Tech," he added.
TCS trades at a premium to Infosys because it has repeatedly impressed the Street with strong earnings. Rich valuations have prevented many brokerages to come out with an aggressive call on TCS. In contrast, Infosys seems to be undervalued after the recent correction, according to many analysts. HDFC Securities has changed its view on Infosys from ‘negative’ to ‘slightly positive’ post earnings. "One positive thing to note is that the market traction for the non-linear platform business (of Infosys) has improved with around 60 clients and over $480 million (Rs 2,657 crore) of bookings. This should help to restrict the margin contraction, compensating for commoditization of certain parts of IT (information technology) services," HDFC Securities said.