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Solid show marred by muted earnings outlook |
ACCUMULATE
CMP: Rs 3,080 Target Price: Rs 3,300
n Revenues at US$ 1,496 mn (+10.2% QoQ) beat high expectations. Op mgns expanded by ~170 bps QoQ to 33.3% (V/s exp of ~190 bps increase)
n Co wide vol growth at 7.1% QoQ (onsite vols up by ~15% QoQ) Broad based growth across verticals/service lines with Europe joining the party with a ~16% QoQ growth
n FY11 Revenue guidance raised to ~24-25% YoY growth now, however EPS raise muted and a tad disappointing at Rs 115-117 ( V/s Rs 112-117 earlier)n Marginal change in FY11/12E EPS despite higher currency reset helped by ~2.4%/6% increase in revenues. Retain ACCUMULATE with a March’12 TP of Rs 3,300
Strong show beats heightened expectations
Infosys reported a +10.2% QoQ increase in revenues to US$ 1,496 mn, helped by
~7.1% vol growth and a 3.2% QoQ increase (led by change in business mix and a
higher % of onsite business as onsite vols up by ~15% QoQ, a double digit QoQ growth
for the 1st time since Sep’06 qtr). Mgns were up by ~170 bps QoQ to 33.3% with hiring
remaining strong at ~7,600 net adds. Profits at Rs 17.4 bn met est driven by higher
revenue/ op profits despite higher than expected taxes. Revenues from top 5/top 10
clients were up by ~13% QoQ while revenues from fin svcs/ manufacturing/retail grew
by ~8%/7%/20% QoQ. Growth surge from Consulting/ P.I and Testing Svcs at
~14%/15% QoQ confirms the pickup in discretionary spending (also evident from the
increase in subcontracting exp being up by ~70 bps QoQ).
Efforts in European geography showing early signs of success
Revenues from Europe were up by ~16% in constant currency terms driven by ramp
ups in manufacturing, retail and insurance clients, which we believe could be early
indicators of success from the senior talent investments made over the past 4-6
quarters. Co indicated that it has won 9 large deals (TCV > US$ 100 mn+) in H1 FY11
with some success in Europe as well. Infosys indicated that it was seeing bigger
transformation deals coming back to the market and saw itself as a more credible
competition for US$ 300-500 mn deals. Mgmt indicated that although core M&A related
work was trending down, however more transformational deals were seeing a pick up.
INR EPS outlook raise a tad disappointing
Despite the strong increase in US$ revenue guidance to U$ 5.95- 6 bn (~24-25% YoY
growth V/s ~19-21% earlier), INR EPS outlook was raise was limited to Rs 115-117 (V/s
112-117 earlier) and is a tad disappointing, however we see co erring on conservatism
given (1) strong revenue traction evident from co’s quarterly show and (2) improvement
in margins that should kick in as engagements shift offshore ( note that onsite % of
business was up by ~220 bps to 50.2%)
Retain ACCUMULATE with an increased TP of Rs 3,300
We increase our FY11/FY12 US$ revenue assumptions by ~2.2%/6% respectively as
we build in ~27.4%/23% YoY growth in revenues thereby leading to a marginal increase
in our FY12E earnings to Rs 148 (while FY11E earnings cut by ~2% to Rs 122) on a/c
of higher reset in US$/INR to Rs 44/$ (V/s Rs 45/$ earlier). Maintain ACCUMULATE
with a revised March’12 target price of Rs 3,300. (V/s Rs 3,200 earlier)
Strong show beats heightened expectations
Infosys reported a +10.2% QoQ increase in revenues to US$ 1,496 mn, helped by
~7.1% vol growth and a 3.2% QoQ increase (led by change in business mix and a
higher % of onsite business as onsite vols up by ~15% QoQ, a double digit QoQ growth
for the 1st time since Sep’06 qtr). Mgns were up by ~170 bps QoQ to 33.3% with hiring
remaining strong at ~7,600 net adds. Profits at Rs 17.4 bn met est driven by higher
revenue/ op profits despite higher than expected taxes. Revenues from top 5/top 10
clients were up by ~13% QoQ while revenues from fin svcs/ manufacturing/retail grew
by ~8%/7%/20% QoQ. Growth surge from Consulting/ P.I and Testing Svcs at
~14%/15% QoQ confirms the pickup in discretionary spending (also evident from the
increase in subcontracting exp being up by ~70 bps QoQ).
Efforts in European geography showing early signs of success
Revenues from Europe were up by ~16% in constant currency terms driven by ramp
ups in manufacturing, retail and insurance clients, which we believe could be early
indicators of success from the senior talent investments made over the past 4-6
quarters. Co indicated that it has won 9 large deals (TCV > US$ 100 mn+) in H1 FY11
with some success in Europe as well. Infosys indicated that it was seeing bigger
transformation deals coming back to the market and saw itself as a more credible
competition for US$ 300-500 mn deals. Mgmt indicated that although core M&A related
work was trending down, however more transformational deals were seeing a pick up.
INR EPS outlook raise a tad disappointing
Despite the strong increase in US$ revenue guidance to U$ 5.95- 6 bn (~24-25% YoY
growth V/s ~19-21% earlier), INR EPS outlook was raise was limited to Rs 115-117 (V/s
112-117 earlier) and is a tad disappointing, however we see co erring on conservatism
given (1) strong revenue traction evident from co’s quarterly show and (2) improvement
in margins that should kick in as engagements shift offshore ( note that onsite % of
business was up by ~220 bps to 50.2%)
Retain ACCUMULATE with an increased TP of Rs 3,300
We increase our FY11/FY12 US$ revenue assumptions by ~2.2%/6% respectively as
we build in ~27.4%/23% YoY growth in revenues thereby leading to a marginal increase
in our FY12E earnings to Rs 148 (while FY11E earnings cut by ~2% to Rs 122) on a/c
of higher reset in US$/INR to Rs 44/$ (V/s Rs 45/$ earlier). Maintain ACCUMULATE
with a revised March’12 target price of Rs 3,300. (V/s Rs 3,200 earlier)
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