Infosys can double investors' money in 3 years: CLSA

The Infosys stock on Friday touched a two-year high, after brokerage firm CLSA said the company had the potential to double investors’ money through the next three years.

The company’s stock hit an intra-day high of Rs 3,019.95, before closing at Rs 3,006.7 on the BSE. The previous occasion the Infosys stock hit an intra-day high of Rs 3,020 was on July 8 2011.

“As executive chairman, Narayana Murthy faces six key challenges, the resolution of which could nearly double investors’ money in the next three years,” the brokerage firm said in a report released on Friday. It added Murthy should focus some key issues, including regaining revenue share, stabilising margins, boosting employees’ morale, carrying out succession planning and improving financial predictability.

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“Even a partial redress has good risk rewards and offers up to 50 per cent total returns over three years, a medium-term opportunity for patient investors,” it said.

Since Murthy returned to the company as executive chairman in June, company stock has risen about 23 per cent. The last time the stock had exceeded the Rs 3,000-mark was on March 7.

In his first address to shareholders after assuming charge, Murthy said he had set a deadline of three years to rebuild the company. He had acknowledged the challenges ahead of him were “daunting” and “tough”. 

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“Therefore, the task of rebuilding a desirable Infosys would take at least 36 months, even with a high-quality team and full dedication of every Infoscion,” Murthy had said at the company’s 32nd annual general meeting.

According to the CLSA report, Infosys could regain its bellwether status in the “optimistic scenario”, owing to Narayana Murthy’s success in tackling key challenges. “Infosys would likely end up with sector-leading revenue and earnings growth by FY16. The concomitant bellwether status, and valuation re-rating could make Infosys the most attractive stock to own in the IT (information technology) sector,” the report said.

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“This would be the ‘reinvention’ scenario and could potentially drive 20 per cent annualised stock return (including two per cent dividend) over the next three years,” it added.

In the ‘base scenario’, investors could expect at least 15 per cent annualised stock returns over the next three years, it said.

With a recovery in the US, the Indian IT outsourcing services companies are seeing a strong rise in their share prices. 

Performances in the past quarter and the revenue estimates of IT majors have infused renewed confidence among investors, leading to a rally in IT stocks on Indian bourses.