The management has reduced its Revenue and EPS guidance by 5% in US $ terms and maintained it in Rs. terms.  At the current price of Rs 1215, the stock is trading at 12 times its expected FY09 earnings of Rs. 101.06.  

In our view, these valuations more than discount the uncertainty associated with the next few quarters. Accordingly, barring a prolonged spending freeze, we do not expect significant downside for the stock from current levels.

What makes us confident on prospects of the companies contrary to market sentiments are the following two aspects:  First, the company has 12 deals in the pipeline for the next 9 to 12 months. It recently won 5 transformation deals which gives good revenue visibility going forward as these deals can be positioned at the higher end of the value chain.  

Second, Company is sitting on liquidity of almost US $ 2.0 Billion. This money will be used to BUY inorganic growth. Due market meltdown, we are sure that there would be many opportunities which company would be able to find which will yield more than 8% it is likely to earn on its investments. We believe this inorganic growth opportunity is not factored into the prices.

Earning Review Infosys 11102008.pdf 137K Download