Infosys' stock to really pick up post restructuring: Manish Sonthalia

In a chat with ET Now, Manish Sonthalia, Sr. VP & Head – Equity Portfolio Management Services, Motilal Oswal Asset Management, shares his views on Infosys.

ET Now: Not a table thumping number but clearly much above what the street or most bullish analyst were betting on?

Manish Sonthalia: 2990 is a huge beat given the sentiments surrounding that stock. It is way beyond street estimates as far as the Q4 numbers were concerned.

ET Now: 2990 prima facie the numbers were looking strong, we do not have details on whether it is a tax ride back or whether it is a forex gain?

Manish Sonthalia: I do not think you are going to see a major variation in the margins because not too much of a volume growth would have happened in the fourth quarter. We have to see the margin picture what sort of a forex gain or loss has come in and what sort of a taxation rate have they applied so all these details would be important.

ET Now: The FY15 guidance is out 7 per cent to 9 per cent, this is the most important number, it is not way out of what analyst were expecting but 7 per cent to 9 per cent is not bad but in line with the most optimistic estimate for FY15?

Manish Sonthalia: They have managed to hold on to the expectation of brokerages' estimates so if they are between 7 per cent to 9 per cent the stock would not react negatively.

ET Now: NASSCOM has indicated that they expect the Indian IT industry to grow at a run rate of about 12 per cent to 14 per cent, Infosys has given a guidance of 7 per cent to 9 per cent so Infosys clearly has indicated that they would grow at a run rate which is lower than the industry average why should anybody be happy that is a bad news?

Manish Sonthalia: They have a lot of restructuring to do, they are rationalising costs, you may want to sell the stock now and buy when the company has got restructured and then jump into the stock because it is a quality name. But whether you want to live through this or not depends upon your understanding about the company and what they have been doing.

They are doing all the right things now, the leadership has been revamped, they would be working on sales effectiveness and delivery productivity. In the next two years hopefully this is the bottom part of the growth that you would be seeing in Infosys. Post restructuring may be this stock will really pick up and this company will get revamped which they have missed out and where TCS has scored.

ET Now: Infosys has some specific issues. At a time when HCL Tech, TCS or Tech Mahindra are growing at a run rate which is much higher than the industry average, why settle for Infosys where we know the path is going to be volatile?

Manish Sonthalia: Dividend payout ratio has a very big bearing on PE multiples. If we are looking at a 40% payout ratio given that dividend yield of the market as a whole always remain between 1.5% and 2%, 15-16 prices to earning multiple is not expensive. We are looking at the bottom end of the valuation range for Infosys where things are only going to look up.

The stock prices do not move looking at the past, they move looking into the future and things are going to improve for Infosys and growth is going to converge towards TCS as far as 2016 is concerned.