INFOSYS TECHNOLOGIES
Current market price: Rs 2,189.90
Target price: Rs 2,260
Upside: 3.2%
Brokerage: Motilal Oswal Securities
Infosys has increased its gross hiring guidance from 18,000 to 20,000 employees in 2009-10. The increase of 2,000 in gross hires could be to replenish resources lost on account of attrition. Infosys might still miss its net hiring guidance (8,000 people in FY10) despite raising its gross hiring guidance. The wage hike is pre-emptive move by the company to hold on to the performing employees as IT hiring is picking up and signals that performance would be rewarded. Infosys has guided EBITDA margin reduction of 200 bps in H2 FY10 and 50-100bp in FY10, thus leaving a buffer of around 200bp in H2 FY10 margin. Expect the EBITDA margin to improve by 20 bps in FY10 to 33.4 per cent. If the rupee does not change materially, the company should be able to beat its EPS guidance in the future quarters, comfortably. Expect a basic EPS of Rs 105 in FY10 (guidance of Rs 100 at the higher end).
Europe and Telecom continue to de-grow at 7 per cent q-o-q and 4.6 per cent q-o-q respectively in constant currency terms. An improvement in telecom and Europe would be key to building in faster growth assumptions for the company. Infosys trades at 21.5 times its 2009-10 estimated earnings. Maintain neutral.
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