Infosys Ltd Future: Growth Is Scarce To Find Despite Sitting On A $6 bln Cash Pile;
Sustaining Below 900-880 Area, May Fall Towards 825-745 In The Coming Days
16/04/2016 (22:00)
Trading Idea: Infy
LTP: 931
Sell below 920 or on rise around 980-990
TGT: 900/880-840 & 825-780-745 (1-3M)
TSL> 950 OR > 1000
Note: Sustaining above 950 area, Infy may rally towards 980-1000 area, which may be a strong resistance zone and only consecutive closing above 1000 area, the stock may further rally for 1025-1050 zone in the short term. Further sustaining above 1050 area, Infy may target 1200-1215 zone in the mid to long term.
Those having long positions in Infy or planning to enter fresh long, may also watch 900-880 area as nearest positional support as sustaining below this zone, the stock may be further weak and fall towards 825-745 zone.
Investment Idea: Infy
LTP: 931
Buy on dips around 900-880 & accumulate on further dips if fall around 825-745
TGT: 1050-1125 & 1215 (12-24M)
For Infy: Consolidated basis
Actual FY-17 EPS: 62.77 Current Average PE: 17 Ideal PE: 12
Median Valuation: 753 (TTM Q4FY17)
Projected FY-18 EPS: 68.37 (as par current & implied run rate and average of consensus estimates & Co’s own guidance) Median Valuation: 820 (Projected FY-18)
Projected FY-19 EPS: 75 Median Valuation: 900 (Projected FY-19)
Projected median PE: 12 (considering management guidance of 7.5% growth and combination of current & implied run rate for previous quarters & years; market may re-rate Infy for its tepid growth despite huge FCF & a strong BS)
Infy reported an EPS of 15.76 on consolidated basis for Q4FY17 against consensus of 15.75 (QOQ: 16.22; YOY: 15.74).
EPS for FY-17: 62.77 (YOY: 59.02) implied a tepid growth rate of around 6.35% against 9.42% in FY-16 and moreover its below co’s previous guidance of 8.5%; management has guided FY-18 growth at around 7.5% (6.5-8.5%) as such, Infy may not be treated as “growth stock” and eventually re-rated by the market around 12 PE in lieu of its current PE of 15 and average median PE of 17 for the last few years.
It seems that despite sitting on a huge free cash pile of around $6 bln, the company has no idea for innovations & further incremental growth in today’s context of IT technology and business model. Traditional days of code writing and service maintenance of enterprise solution may be over; Indian IT big wigs may have to find some innovative way for a double digit growth. Guidance of Infy for 7.5% growth in FY-18 may be lower by industry standard itself and that of Cognizant also. Although, Infy has already taken some steps to rejuvenate growth by acquiring some start ups/companies in AI, digital/automation, cloud technology etc, it may be too little & too late.
Infy is planning to return a substantial portion of its current FCF to shareholders by way of extra dividends & share buy backs; but although such buy back may be positive for the stock price in the short term, in the long term it may also indicate that the co has no proper business plan or rather a proper opportunity to use its cash to expand. Only a definitive big buy backs offer by the co at this stage may be able to reverse its present downwards trend for the stock price.
Analytical Chart: Infy ( for more pls see: https://asisghosh.blogspot.in/2017/04/infy-growth-is-scarce-to-find-despite.html)
