Add rating to Infosys shares, target kept unchanged at Rs 3,750: Kotak Institutional Equities

Updated: Nov 20 2013, 14:42pm hrs
Infosys resultsPositive stance on Infosys is driven by expectation of catch-up in revenue growth. (AP)
Stephen Pratt, head of utilities & resources for North America and executive council member, has resigned from Infosys. He had previously led Infosys consulting practice. Pace of exits at senior management is worrying, though somewhat expected for a company in transition. We would monitor the pace of new leadership hiring that could offset the impact of quality talent exit. Our positive thesis on Infosys, hinged on revival in revenue growth momentum (a mix of demand environment and Infosys improved execution) and better-than-peers ability to improve profitability, is intact. Retain ADD rating.

Exits are inevitable in any reorganisation. What matters, however, is the magnitude and the replacements. The challenges for Infosys are numerous constant reorganisation has led to accelerated drain of management talent and the organisation does not appear to be open to absorbing external talent at the senior management level. It is plausible that the company has strong leadership bench strength but will have to put it to use quickly to give us and the Street comfort. Senior management exits can have an impact in the medium term if the company does not act decisively to correct the course.

Our positive stance on Infosys is driven by our expectation of catch-up in revenue growth with industry and an improvement in margins (ex-currency). We maintain our ADD rating on Infosys with unchanged target price of R3,750. Infosys is our preferred pick in Indian IT.

Kotak Institutional Equities