Cazenove maintains buy on Infosys scrip

NEW DELHI: Cazenove & Co has maintained its buy on Indian software leader

Infosys Technologies, saying it was trading at a discount to its US peers.

The securities firm said in a report dated June 5 and obtained by Reuters on

Thursday that Infosys was trading at a price-earnings to growth (PEG) multiple

of one, lower than that of US-based software firms which traded at PEGs ranging

from one to 1.6.

"Infosys, with better growth prospects, is trading at a discount to the

software companies in the United States and therefore provides upside potential.

We maintain our buy recommendation," Cazenove said in its report. The firm

said Infosys was among the best placed to counter the effects of the US economic

slowdown with its diversified business model and its execution strength.

The Bangalore-based technology leader warned in April of lower revenue growth

of 30 per cent during the year to March 2002, wrong-footing analysts who had

expected its revenues to grow 45 to 50 per cent. Cazenove said the firm's

forecast appeared to be aimed at tempering market expectations and any future

uncertainty.

It said that Infosys added 80 net new clients and boosted the number of

million-dollar clients to 80 from 42 during the fiscal year to March 2001.

"Even if there no change in new client additions or million-dollar client

additions, and despite a 30 percent decline in per client revenue contribution

from additional million-dollar clients as compared with FY2001, we believe that

Infosys should be able to achieve or surpass its revenue target," it said.

The report said it expected the company to easily expand its presence in

North America by 12 per cent, which was necessary for it to meet its revenue

growth target of 30 per cent.

"But a decline in the proportion of revenue from North America may have

a small effect on the margin, which may decline by 60 bps (basis points). In

spite of this, Infosys would have one of the highest margins in the

sector," Cazenove said. The securities firm said it was seeing a change in

Infosys' service mix with strong growth coming from package implementations and

other services at the expense of development projects.

"However, there is not much difference in the billing rates for

developmental projects and package implementation services," it said.

(C) Reuters Limited 2001.