* Infosys’ Infrastructure management services (IMS) practice has
consistently outgrown peers in the past 3 years. Importantly, the
EBITDA margins are in-line with company average and significantly
higher than peers, highlighting Infosys’ ability to grow new
businesses’ at superior margins. With our channel checks pointing
towards acceleration in revenue growth trajectory, Infosys is likely
to outperform, in our view. Retain Buy on Infosys.
* Infrastructure management services (IMS) practice – a
revelation: Contrary to perception of Infosys lagging peers in IMS, we
are positively surprised by a) absolute size of IMS practice
(US$141mn, second largest after Wipro) & b) 10.1% compounded
quarterly growth rate achieved in the past 3 years. Adjusted for the
India business and acquisitions made by peers, we reckon, Infosys IMS
practice may be the largest in the industry.
* Margins at IMS in-line with company average: EBITDA margins at
IMS practice are in-line with the company average (~34%); dispelling
notion of lower margins in new service lines.
* Superior business model driving growth: a) Infosys ability to
convert capital expenditure to operating expenditure, b) transparent
and flexible pricing structure, & c) alliances with hardware and
software vendors. On the back of superior business model, Infosys has
been able to replace global incumbents from existing contracts.
* Revenue growth likely to surprise in FY11/FY12: As highlighted
in our note on Infosys titled “Powering ahead” we believe that revenue
growth is likely to surprise in FY11/12E. Infosys has the highest margin
buffer compared to peers and this should result in superior EPS
growth. We reiterate Buy with a price target of Rs2,727, based on 20x
1 year forward EPS. We remain buyers of tier-1 Indian IT.
| NIFTY 
