CMP: Rs 1,721 Target Price: Rs 1,640
Our recent interactions with Infy management indicate of more confidence within the company about the demand/volume pick up with co appearing more hopeful about a volume pick up from Oct'09 onwards (V/s April'10 earlier). Co cites increase in deal pipeline/ contract negotiations with some integration related business opportunities emerging in financial services (e.g. BofA+Merrill Lynch etc) and a slightly more confidence on business prospects (V/s peers like TCS) from the Manufacturing vertical. We expect (1) Infy to beat upper end of Q1FY10 US$ revenue guidance (revenue guidance of US$ 1,060 mn-1,080 mn) on account of cross currency benefits (highlighted earlier in our mail: Cross currency: From Foes to Friends) and (2) a revision in US$ annual revenue guidance to ~US$ 4,475-4,615 mn (a YoY decline of 4% to 1%) however would rule out any volume led revision in annual revenue guidance. We note that our estimates already build in volume pickup from H2FY10 onwards (7.2%/13.2%/13.1% vol growths for FY10/FY11/FY12 respectively) and estimate EPS of Rs 106.3/Rs 118.2 for FY11 /FY12. Valuations at 16.5x FY11 earnings make us biased towards the downside. Maintain HOLD with a revised TP of Rs 1,640 (V/s Rs 1,330 earlier) as we roll forward target to March 11 V/s March'10 and reduce WACC assumptions by ~100 bps.
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