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MSFL Research
Infosys (Accumulate)
CMP: Rs 2,194
Target: Rs 2,551
Long term growth strategy laid out by Infosys management will take time to demonstrate any visible impact, primarily in consulting and IP based solutions, and more so under current macro environment. Increase in decision time by clients might delay projects risking the revenue growth. We believe muted spending across certain verticals might suggest some short to medium term pressure on earnings but with a lag and thus pressure over H2FY12 and FY13. Possibility of the same happening could de-rail the current FY12 revenue guidance of 18-20 per cent which has higher back-ended growth expectation on back of restructuring. We thus downgrade our FY12/FY13 EPS estimates by 3.4 per cent/6.3 per cent to ‘130/' 150. However EPS and forward P/E downgrade (from 18x to 10x) during 2008-09 crisis was too sharp due to sudden macro erosion and low reaction time for risk management. A higher disciplined IT spending by clients this time around; better business model reach and diversification of Infosys should thus limit the same level of P/E downgrade. We maintain ‘Accumulate' at current levels with revised TP of Rs 2,551 (17xFY13P).
Supreme Infra (Buy)
CMP: Rs 227
Target: Rs 275
Supreme Infra exceeded expectations with sales growth of 79.3 per cent and net profit growth of 64 per cent as against our expectation of 42.5 per cent and 4 per cent respectively. Consistent pace of execution in captive road projects and some of its building projects has helped Supreme Infra report stellar results for 5 quarters in a row. For consistent outperformance of its expectations, execution in its buildings segment will have to pick up particularly since captive road projects contribute 33 per cent (excl. L1of 3.8bln) of the unexecuted order book, which are yet to achieve financial closure. We believe investor focus for the company has shifted towards concerns regarding increasing equity commitments towards its BOT projects. Although the management has ruled out dilution at Supreme Infra level, we are sceptical of any PE interests at the BOT Infra holdco level considering the number and mix of assets the company possesses. However, any clarity in management strategy to address these concerns shall be a positive trigger for the stock.
Bonanza Portfolio
ITC (Buy)
CMP: Rs 202
Target: Rs 215
The stock is in continued uptrend since the last week of February when it touched the low of 149. Since then the stock has been making higher tops and higher bottoms with steady volumes. In its uptrend, the stock is getting good support at its 50 ,100 and 200 DMA .Recently the stock after touching the high of 211.25, tested the levels of 190 on profit booking. Stock is again trading near its support area and the possibility of it inching upward is high. Looking at the good volumes generating in the stock and the availability of the stock near its crucial support area, the stock is expected to touch 215 in medium term. Small resistance is placed around Rs 206.50, a closing above which will make stock bullish enough to test the highs of Rs 211-215. Stop-loss Rs 188 on a daily closing basis.
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