13 January 2011

Deutsche Bank: Infosys Technologies Buy 3QFY11 results - first cut

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Dec-Q below our expectation
Overall volume growth of 3.1%qoq (vs DBe of 7%) and a 2.7% increase in
reported pricing contributed to 5.9% qoq growth in US$ revenues (vs DBe
8.5%). EBIT margins at 30.2% were flat qoq. This was 115bps lower than
our expectation, predominantly on account of lower volume induced drop
in utilisation (including trainees) by 170bps qoq. Key positives- impressive
growth in the discretionary services like package implementation, product
engineering services, etc. BFSI and manufacturing verticals lead growth.
Key negatives - no growth in the telecom vertical.

Below par Dec-Q leads to lower than expected guidance revision
Infosys' management now expects FY11E US$ revenues to grow
25.7-26.1% yoy vs 24-25% yoy earlier. Given the below par Dec-Q and
muted growth guidance for the Mar-Q, the INR EPS guidance has been only
marginally increased to INR118.7-118.9 vs INR 115-117 earlier. We believe,
better utilisation led operating leverage will be the key lever to mitigate the
impact of an appreciating rupee.

Mar-Q guidance is conservative
Infosys 4Q guidance of 1-2% qoq growth in USD revenue indicates a fairly
conservative revenue growth expectation. We believe that Infosys is well
placed to beat its FY11 guidance given the strong recovery in demand.
Maintain Buy and top pick status.

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