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Infosys Technologies |
Misses heightened expectations |
ACCUMULATE
CMP: Rs 3,205 Target Price: Rs 3,400
n Infy’s Dec’10 show a tad disappointing when weighed against the heightened street expectations. Lower operating performance coupled with higher taxes drove profit miss
n Seq vol growth at 3.1% was the lowest in 5 qtrs, however improvement in price realizations/cross currency gains helped drive a ~6% QoQ revenue increase.
n A 1-2% QoQ growth March’11 qtr guidance is well below a ‘normal’ March qtr’ guidance, however we see reasonable beat on it ahead.
n Cut FY11E EPS by ~2% to Rs 120, while tweak FY12/13E EPS up by ~1.1/4.4% to ~Rs 150/182, aided by a currency reset to Rs 45/$. ACCUMULATE, TP Rs 3,400(V/s Rs 3,300 earlier)
6% QoQ revenue growth ain’t enough
Infy reported rev of US$ 1,585 mn(+5.9% QoQ) missing expectations (Emkay est of 7%
QoQ increase). Op mgns were down by ~10 bps QoQ to 33.2% (V/s expectations of
~20 bps increase). Profit miss was driven by lower operating performance and higher
taxes. Sequential vol growth at 3.1% was the real negative in our view, especially
as the street/investors continues to warm up to a 24-25% volume growth for
FY12E and could dent confidence on the same for a while. Growth was broad based
across sectors with rev from fin services/manufacturing/retail up by ~8.6/9.9/6.7%
sequentially. Employee addition was strong with a net hiring of ~5,300 employees
during the quarter (which included a gross lateral hiring of ~5,200. Although reported
TTM attrition inched up further to 17.5%, quarterly annualized attrition declined to 18%
(V/s 20%+ over the past 2 quarters). Blended pricing was up by 0.5% sequentially in
constant currency terms. Co now intends to hire ~40K people on a gross level V/s 36k
earlier for FY11. Infy has already given campus offers for ~26k freshers for FY11
(V/s 20k during FY10), a clear indicator of demand strength despite the
conservatism in the management commentary and sobering results.
Muted March’11 qtr rev guidance-conservative in our view
Infy’s March’11 qtr revenue guidance of US$ 1,601-1,617 mn appears muted when
weighed against co’s record of reporting a 5%+ QoQ rev growth in March qtr over the
past 8 years albeit for FY09 and could end up being once again a case of erring on the
conservative side by the co. Full yr revenue guidance has been raised up marginally to
US$ 6,040-6,060 mn (+25.7-26.1% YoY, V/s 24-25% earlier) driving an increase in EPS
outlook to ~Rs 119 ( V/s Rs 115-117 earlier)
Tweak FY12/13E earnings up by 1.1/4.4% to Rs 150/182 respectively,
retain ACCUMULATE
We cut our FY11E earnings by ~2% to Rs 119.7 driven by marginal reduction in our
US$ revenue expectations and higher tax rate assumption despite a lower currency
reset. We raise our FY12/13E earnings estimates by 1.1%/4.4 % respectively to Rs
150/181.6 (V/s Rs 148.3/173.9 earlier) driven by higher revenue growth expectations
(we build in 24.7%/20% YoY growth for FY12/13 V/s 22.5%/19% earlier), aided by a
lower currency reset to Rs 45/$(V/s Rs 44/$ earlier). Retain ACCUMULATE with a
revised target price of Rs 3,400 (V/s 3,300 earlier)
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