13 January 2011

Cowen: INFY: Post-Q3/FY11 Results Comments

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Infosys Technologies Ltd (ADR) ó Outperform (1)
INFY: $76.68
 January 13, 2011
Quick Take: INFY: Post-Q3/FY11 Results Comments


CONCLUSION
As we expected, despite Street's expectations of revenue/EPS upside from INFY's
Q3/FY11 results, we didn't consider the December Q results (typically, seasonallyweak quarter) as a catalyst for the stock, especially considering the recent strong
stock performances. For investors looking for Q4/10 result derivative "plays" with
reasonable valuations and further, possible significant upside to consensus
estimates 6-12 months out, we would  own Outperform rated-Accenture (ACN,
$49.89), Virtusa (VRTU, $17.55) and Hisoft (HSFT, $30.49) and stay away from
Underperform-rated Wipro (WIT, $15.04) considering the company's recent dismal
ranking in our offshore spending survey.

KEY POINTS
Q3/FY11 results: Revenue/EPS of $1.585B/$0.69 were above consensus estimates
of $1.55B and $0.67, respectively. While Q-Q revenue growth was close to 6% (above
management's guidance of 3%), we believe "whisper" expectations were 6-8%.
Revenue metrics (Q-Q growth):
• By region, NA up 4% (vs. 8% in Q2/FY11).
• By vertical, Manufacturing up 10% (vs. 7%  in Q2/FY11); BFSI 8% (8% in
Q2/FY11), Telecom flat (vs. 4% in FY11), retail up 7% (20% in FY11).
• By services, Development up 6% (vs. 2%), Maintenance up 1% (vs. 8%),
consulting and package implementation up 6% (vs. 14%).
Headcount growth bodes well for FY12 top line growth: We expect YOY net
headcount growth for FY12 to be roughly  around the mid-20% levels, which could
translate to 20%-25% top line growth, compared to Streetís expectations of 17%
revenue growth.
Street expectations: The wide variance in FY12 expectations, which is roughly 20%,
could result in near-term volatility for INFY's stock

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