Visit http://indiaer.blogspot.com/ for complete details 􀂄 􀂄Double-digit growth backed by persistent volume growth & better business
mix: Infosys’s reported revenues for 2QFY2011, which was way ahead of street
as well as our expectation. Revenues stood at US $1,496mn with a 10.2% qoq
growth backed by volume growth of 7.2%, cross-currency benefit of 0.7% as well
as better business mix (higher component of discretionary services like consulting
& package implementation, product engineering & system integration) aiding
revenue productivity by 2.5% qoq.
Operating margins rebound: EBITDA margins rebounded by 165bp qoq to
33.3% on strong utilisation absorbing the previous quarter’s wage hike effect and
favourable currency negating the effect of higher onshore effort.
FY2011 guidance revised upwards: Infosys has revised its FY2011 revenue
growth guidance from the earlier growth of 19-21% to 24-25% yoy at
US $5.95-6.0bn, and EPS growth from the earlier 5.2-9.6% to 10.4-12.2% yoy in
US dollar terms. This is the first quarter ever when the company had incremental
revenues of more than US $100mn qoq, whereas in FY2010 it was only US
$141mn, envisaging return of discretionary spending.
outlook, but at the client level the company is witnessing increasing propensity to
spend on the change-the-business initiatives. We expect the company to record
robust 25.6% CAGR in US$ revenues over FY2010-12. However, margin
headwinds are expected to persist due to necessities like competitive wage hikes &
promotion, higher onshore component in near-term with flat pricing situation as
well as stronger rupee against the USD. EBIDTA and PAT CAGR are expected to
be subdued at 17.0% and 13.8% over FY2010-12, respectively. At the CMP, the
stock is trading at fair valuations of 21.7x FY2012E earnings and at par with
historical 5-year average PE of 22x. Hence, we remain Neutral on the stock.
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