Infosys Technologies Ltd

Investors with a one-two year perspective can buy the shares of Infosys Technologies, considering its attractive valuations and reasonable business prospects, despite the current rough macro-environment.

At Rs 1,225, the stock trades at just 12 times its likely 2008-09 earnings.

The stock has fallen 30 per cent in the last one month alone, leading up to the September quarter results. But its revenues and net profits have grown by over 30 per cent over last year's. Its dollar earnings guidance has been lowered, but the rupee guidance has been kept in tact. This, together with a flat pricing assumption, makes it attractive at these levels, even after factoring in concerns on clients' IT spends. Given the global turmoil involving companies in the banking, financial services and insurance space, only tier-1 software companies may have the ability to withstand the impact of lowered IT spends by such clientele.
No 'tainted' clients

Infosys does not have any of the failed investment banks among its clientele and is actually on the right side of the recent spate of takeovers, suggesting scope for added business. In the latest quarter, a majority of its new clients are from the BFSI segment. The company has started initial work on integration in a couple of cases where mergers and acquisitions have happened.
Positive factors

Internally, the company has had several trends working in its favour over the last few quarters. An improving service-mix towards higher value services such as consulting and package implementation is one such trend; the contribution from these services is over 25 per cent currently. Key operating metrics such as utilisation and increasing offshore component have helped volume growth and optimised costs.

Improvement in fixed-price projects, which rake in better realisations, is another positive trend. Manufacturing, a vertical that is increasingly adopting technology, has increased contribution steadily and now clocks over 20 per cent of its overall revenues, thus reducing dependence on BFSI.

An exchange rate assumption of Rs 46.97 also allows comfort on the company's ability to achieve its guidance. The key risks to this recommendation are the possibility of stagnation in volumes from new clients, reduced IT spends by clients or any demand for reduction in pricing of deals and the possibility of vendor consolidation.