Key Data

CMP Rs 1750.75

Sector Software

Face Value Rs.5

BSE Code 500209

52 Week H/L Rs 2415/ 1517

Market Cap Rs 95235 Cr

Investment Rationale

Infosys is the leading Software Company in India and is held in high esteem by clients and competitors alike. The company witnessed growth of 6.3% q-o-q and 20.4% y-o-y in top line to Rs 4542 crore. The net profit declined by 5.1% q-o-q and 2.1% y-o-y to Rs 1168 crore, while the EBIDTA margins declined by 80 bps at 32.5% in Q3 FY08. The company is witnessing strong sequential growth in Maintenance, Package Implementation, Testing and BPO services. While in terms of verticals it is witnessing strong growth in BFSI, Retail and Services sectors. Though the company’s growth slowed down in Q3 FY08 vis-à-vis its robust growth in Q2 and Q3 of FY08 quarters, it has exceeded guidance. The company’s books reflect healthy financial performance with cash and cash equivalents of Rs 6950 crore as on date. Also it has superior compelling value proposition to offer to its clients and higher EBIDTA margins compared to its peers. Thus the company still has strong potential for growth in future and based on the strong expected earnings in the next year, we recommend a buy on the stock with a long term view.

Despite current trends which have lead some operators to decline pricing or maintain current levels, Infosys has been able to record a marginal increase of 0.24%y-o-y in billing rates during Q4FY08 and 5.6% y-o-y. Offshore billing rates have increased 0.53% y-o-y while volumes on the top 10 clients grew 12% y-o-y. This trend was supported by the company’s policy to be selective in accepting contracts, maintaining revenue productivity and deep client relationships. Given the flat trend in Q4FY08, and the current US economic environment the company has guided towards stable pricing trends in FY09.

Infosys plans to hire about 25,000 candidates in FY09, which are about 8,000 less than FY08 levels as the company expects the first two quarters of this year to go slow. Of the 25,000-strong recruitment planned, 18,000 campus offers have been made. Typically, 70- 75% of these offers are converted into recruitment. In Q4FY08, the company added 2,586 employees and recorded a decline in attrition to 3.8% compared to 4.0% in Q4FY07. This contributed to a decline in utilization Q4FY08, and is expected to improve in Q1FY09 to 76.5%

At the CMP of Rs 1750.75, Infosys is quoting at a PER of 21.85. On EV/Sales and on EV/ EBIDTA basis it is quoting at 5.46x and 17.38x respectively based on consolidated twelve months earnings ending as on Mar’08.

The Indian stock markets gained ground in the last holiday-shortened week of trade, driven by decent growth guidance from ‘technology bellwether’ Infosys, seemingly receding concerns about a US recession and lower inflation numbers. During the week, the 4QFY2008 and FY2008 results gathered steam, with Infosys announcing its numbers. It did not disappoint. It’s guidance for FY2009 was heartening, coming above consensus estimates. This led to a surge in IT stocks across-the-board. Overall results are also expected to be largely good, even as the US recession, global concerns and high inflation levels could play spoilsport to some extent. Global markets also displayed a positive trend over the week, which was driven by receding fears about the impact of the US recession on the global economic engine. The US sub-prime issue also seems to be settling down to an extent, thus proving to be another factor driving the gains in global markets. Read More

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Key Data

CMP Rs 169

Sector Banking

Face Value Rs.10

BSE Code 532648

52 Week H/L Rs 278/ 120

Market Cap Rs 5012 Cr

Investment Rationale

YES BANK is a private Indian bank promoted by Rana Kapoor and Ashok Kapur with financial support from Rabobank Nederland, and global institutional private equity investors. YES BANK has 67 operational branches across 57 locations nationally, YES BANK has received additional licenses to open 57 new branches and 125 offsite ATMs taking the total licensed network to 117 branches and 200 Offsite ATM’s. YES BANK is steadily building corporate and institutional banking, financial markets, investment banking, corporate finance, business (SME) and transactional banking, retail banking and wealth management business lines across the country.

Net profit of the bank has shown extraordinary growth of 108percent qoq in Q3FY08 driven by controlled operating expenses and expansion in the NIM. Advances of the bank has grown by 50percent qoq and deposits by 61percent (qoq) and CASA deposits by 138.2percent (yoy) for the same period. The bank has ROA of 1.61percent ahead than other private sector banks. For the first time in the history of Yes Bank, it reported Gross NPA of 0.11percent and Net NPAs of 0.09percent.

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