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UBS Investment Research
Infosys Technologies Ltd.
Read through from Cognizant 4Q results
Cognizant 2011 revenue guidance is “at least” 26% YoY growth
Cognizant reported 4Q 2010 revenue growth of 7.7% QoQ to US$1.31bn, 2.5%
ahead of UBS estimates. The company gave 1Q 2011 revenue guidance to be ‘at
least’ US$1.36bn, a 3.8% QoQ growth. Revenue outlook for 2011 is ‘at least’ 26%
YoY growth to US$5.79bn. This is in-line with our US analyst expectations.
Guidance underpins mid-twenty dollar revenue growth for Infosys
We have estimated revenue growth of 5% QoQ for Infosys and 23.4% YoY growth
for the next fiscal year. We believe our dollar revenue growth forecast for Infosys
looks achievable in the midst of initial set of conservative guidance by Cognizant.
Cognizant plan to increase its capacity for 55,000 employees by 2014, which
supports our view on strong demand outlook.
Cognizant’s operating margin remains stable at 20%
Cognizant was able to maintain the operating margin at 19.8% well in the range of
its guidance of 19-20%. This was primarily led by higher price realisation.
However, this margin is lower than the 25% plus margin for Tier I Indian vendors.
We continue to believe that unlike Indian vendors, the lower margin profile of
Cognizant provides greater scope for growth without impacting the EPS growth.
Valuation: reiterate Neutral on Infosys with a price target of Rs3,175
We retain our Neutral rating. Our price target of Rs3,175 is derived from a DCFbased
methodology and explicitly forecast long-term valuation drivers using
UBS’s VCAM tool. We assume a WACC of 11.5% and terminal growth of 3%.
Infosys Technologies Ltd.
Infosys is the second largest IT services company in India with US$4.8bn
revenue and around 114,000 employees in FY10. Its services include application
development and maintenance, consulting services and package implementation,
business process management, infrastructure management, and testing services.
It provides these services to international clients through offshore development
facilities in India and other global centres. Infosys derives 66% of its revenue
from the US, 23% from Europe, and the rest from Asia Pacific.
Statement of Risk
A sharp decline in IT Services spending could result in downward revision of
our earnings estimates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Infosys Technologies Ltd.
Read through from Cognizant 4Q results
Cognizant 2011 revenue guidance is “at least” 26% YoY growth
Cognizant reported 4Q 2010 revenue growth of 7.7% QoQ to US$1.31bn, 2.5%
ahead of UBS estimates. The company gave 1Q 2011 revenue guidance to be ‘at
least’ US$1.36bn, a 3.8% QoQ growth. Revenue outlook for 2011 is ‘at least’ 26%
YoY growth to US$5.79bn. This is in-line with our US analyst expectations.
Guidance underpins mid-twenty dollar revenue growth for Infosys
We have estimated revenue growth of 5% QoQ for Infosys and 23.4% YoY growth
for the next fiscal year. We believe our dollar revenue growth forecast for Infosys
looks achievable in the midst of initial set of conservative guidance by Cognizant.
Cognizant plan to increase its capacity for 55,000 employees by 2014, which
supports our view on strong demand outlook.
Cognizant’s operating margin remains stable at 20%
Cognizant was able to maintain the operating margin at 19.8% well in the range of
its guidance of 19-20%. This was primarily led by higher price realisation.
However, this margin is lower than the 25% plus margin for Tier I Indian vendors.
We continue to believe that unlike Indian vendors, the lower margin profile of
Cognizant provides greater scope for growth without impacting the EPS growth.
Valuation: reiterate Neutral on Infosys with a price target of Rs3,175
We retain our Neutral rating. Our price target of Rs3,175 is derived from a DCFbased
methodology and explicitly forecast long-term valuation drivers using
UBS’s VCAM tool. We assume a WACC of 11.5% and terminal growth of 3%.
Infosys Technologies Ltd.
Infosys is the second largest IT services company in India with US$4.8bn
revenue and around 114,000 employees in FY10. Its services include application
development and maintenance, consulting services and package implementation,
business process management, infrastructure management, and testing services.
It provides these services to international clients through offshore development
facilities in India and other global centres. Infosys derives 66% of its revenue
from the US, 23% from Europe, and the rest from Asia Pacific.
Statement of Risk
A sharp decline in IT Services spending could result in downward revision of
our earnings estimates.
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