Prabhudas Lilladher’s rating ‘reduce’ on Infosys

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CMP: Rs 1,135.70

Target Price: Rs 1,246

Prabhudas Lilladher has a ‘Reduce’ rating on Infosys Technologies as he feels the outlook for the company and the software industry is very weak in the near term.

“While we expect Infosys to outperform other players in the industry, we short the stock with a target of Rs 1,246,” the report said.

With a tough FY10E and full-tax FY11E, the two-year earnings CAGR (FY09-11) for the company is unlikely to exceed 10-15%, it adds. According to the broking house, the company’s pricing power in new contracts will remain under pressure as “the pricing behavior by competition has become aggressive in new contracts.”

While Infosys has seen some weakness in the BFSI domain in the recent past, the organization expects this weakness to “spread across the retail and possibly the manufacturing domain as well.” Of the various service lines, Enterprise Solutions may be the worst affected. It adds up, according to management, over the next few quarters. The broking house is also expecting a further reduction in US dollar guidance by Infosys.

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