Infosys showing signs of a turnaround: Nirmal Jain, IIFL

Kicking-off the second quarter result season, Infosys upped the lower end of its revenue outlook to state that the company will at least grow by nine percent during the financial year 2013-14.

Nirmal Jain, chairman, IIFL spoke to SmartInvestor’s Aastha Agnihotri on the Q2 results of the IT heavyweight in an exclusive LIVE chat and also replied to investor’s queries. Excerpts:


SmartInvestor: What is your first take on the Infosys results?

Nirmal Jain: Overall, the results have been above expectation. The dollar revenue growth has been healthy. Although margins have declined somewhat, it is on account of an exceptional item. Net profit has been in line with expectations.

SmartInvestor: Bhupinder Singh asks: Is Infosys a buy now and what is the target price?

Nirmal Jain: If you dont have exposure to the IT sector, then from a long term perspective you can buy into stocks like HCL Tech and Wipro. Our Research has a Hold rating on Infosys.

SmartInvestor: Vinod Nayar from Trivandrum asks: What is the outlook of Infosys from a 3-year perspective and possibility of long overdue Bonus?

Nirmal Jain: The return of Narayan Murthy has raised a lot of hope from the company. Also, the sector is looking up. With Infy valuations at 25% discount to TCS, we believe there is scope of a re-rating if and when things turnaorund decisively. Whether a bonus would come through cannot be said with certainty at this juncture.

SmartInvestor: Raja Tadvai from Seattle asks: What is the likely revenue from cloud business and next 3 years growth numbers. R&D innovations and how they are generating revenues?

Nirmal Jain: I don't think cloud business revenues are charted out separately. Same for R&D innovations. Overall Dollar growth for the company is likely to witness 15% CAGR over next 2-3 years.

punter: Is the worst over for the company? Are higher levels on the stock possible over the next one year?

Nirmal Jain: The company is surely showing signs of a turnaround. With the return of NRN, there is a heightened focus on cost efficiency and large outsourcing projects. Also, TCS valuations are rich and fund managers could reshuffle in favour of Infy is there is a sustained performance.

Stock Maniac: Hi ! Mr. Jain, What do you expect from TCS counter in terms of Q2 results?

Nirmal Jain: Our Research expects TCS dollar revenues to grow by 5% qoq (including ALTI acquisition). Due to high depreciation in INR during the quarter, we expect the EBIDTA margins to expand 290bps qoq. TCS along with HCL Tech will continue to lead the sector from revenue growth perspective.

punter: Mr Jain, where do you see the rupee headed and what is the likely impact on IT companies? Are stock prices factoring it in yet?

Nirmal Jain: I think the worst is over for the INR. The move on FCNR-B limit increase and swap was a master-stroke by the new RBI Governor, Mr. Raghuram Rajan. With lower oil imports and curbs on Gold, the Current Account Deficit (CAD) also seems to be getting under control. The latest trade deficit data is highly encouraging. We expect the INR to stabilize and move in 59-62 range. The current levels of the INR are still 14% depreciated compared to FY13 and hence will benefit IT

SmartInvestor: Romita asks: A lot of senior people have left the company. Will this impact future performance?

Nirmal Jain: It may have a near-term impact which is not unusual when senior employees leave a company. However, a company like Infy is system driven with a strong management bandwidth and hence the impact will not be long lasting.

Stock Maniac: Nirmal Sir, Infy numbers seem robust but it opened around only 3% higher. Are there some concerns what is holding investors back

Nirmal Jain: While the revenue numbers were strong, the guidance was not increased commensurately. Let me explain: Infy has guided for 9-10% growth in FY14. Even if Infy reports flat numbers in next two quarters, it will post 11% revenue growth. This indicates that the management is still cautious about the demand environment. I think investors are waiting to hear more from the mgmt to get a better picture.

Stock Maniac: Sir, will IIFL get banking license, should I buy your share?

Nirmal Jain: The topic is about Infy and we would like to stick to that.

SmartInvestor: What is your overall outlook for the markets now?

Nirmal Jain: The extreme pessimism which we were witnessing a month ago is no more. The Rupee depreciation has halted and some appreciation has taken place. The new RBI Governor has reversed many of the liquidity tightening measures. The Govt seems to have got its grip on the CAD. Exports are improving. However, there are still many issues like a falling savings rate and high inflation, reliance on foreign hot money, high fiscal deficit and major reforms yet to go through. Asset quality of banks is also a worry area. Market valuation has also gone up in the last few weeks. The market will be rangebound in the coming months. Only clarity on election outcome can add another leg to this rally.

Nirmal Jain: Thank you all for participating in the chat.

SmartInvestor: Thankyou so much sir for taking out time and addressing our queries