PINC Research Report Gives ‘Buy’ Rating To Outsourcing Giant Infosys

December 23, 2010

According to PINC Research, shares of outsourcing giant Infosys Technologies are likely to climb. The consultancy firm has tagged the stock with a buy rating. The company’s research suggests that Infosys will hit Rs. 3500 in its report for December 16.

The reports states, although Infosys budgets are typically flat, the offshoring segment is likely to add points. Retail is looking robust while the telecom sector is at a decline. It is expected to be at this dip for the near term. The great thing about offshoring is that countries like France and Germany are opening up to outsourcing and demand in these countries is looking bullish.

Although there are some ongoing price negotiations on the table, prices are generally going to stabilize, says PINC’s report. The management at Infosys sees no spike in billing rates in the next few quarters. This will also stabilize its outsourcing stance, since companies are slow in looking for opportunities in a weak recovery following a recession. Despite a rise in competition in Europe, Latin America and Eastern Europe, outsourcing to India is expected to continue at a robust pace.

Another plus for Infosys is that the company is investing a lot into skills development in cloud computing although it is in its nascent stage. Apart from that, the mega outsourcer is looking to hire 50,000 staff by February 2011. Incidentally, salaries are projected to be the same as those for last year’s staff.

The report read that in due time, a more robust recovery in the worldwide macroeconomic environment is likely to take place. Due to more investment in the IT industry by large customers along with the diversified service portfolios of big Indian IT vendors, there is likely to be a faster growth there than at mid-tier IT vendors. PINC believes that large caps will outperform  mid-caps in the near future.

At the present time, Infosys is trading at 25.8x FY11E earnings. The company has placed a buy rating on shares of Infosys with a target of Rs.3, 500, extrapolating on 23x FY12E earnings.


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