Infosys Technologies has won a contract of Rs 1.96 bn spread over five years from Sainsbury’s Supermarkets, one of UK’s largest supermarket chains. The company will provide development, and maintenance support for its finance, marketing and warehousing applications.
A world leader in providing IT consulting and software services to Fortune 1000 companies, Infosys offers software services such as application development, re–engineering, software maintenance, Internet consulting and package implementation.
This contract would help Infosys in maintaining its 100% bottomline growth since it would add on an average approx. Rs 400 million to the topline and at the current margins add around Rs 100 million to the bottomline. Besides, it would also give a company a strong referral for bidding for further contracts from the other retail chains such as Walmart, Tesco etc.
Further, with the clarification from the Finance Ministry that the earnings of software companies from the existing facilities in the software technology parks and the export processing zones continuing to remain tax free coupled with the fact that companies such as Infosys which have a foreign branch and are taxed in those countries will get tax credit for the tax paid abroad this should imply continuing good times for the company.
Also, the increase in the FII limit to 40% (from the present level of 35%) implies arbitration by the FIIs who could sell the ADS listed on the NASDAQ which are quoting at a 100% premium to the domestic price and buy in the domestic market.
Despite the stock trading at a historical peak, given the potential from acquisitions, overseas development, e–commerce thrust, the upside remains. Perhaps the only grey area could be a de–rating of the sector as a whole, which doesn't seem likely at the moment. It is for this reason that the analysts have flagged the stock as a ‘BUY’.
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