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Infosys Technologies Neutral
INFY.BO, INFO IN
FY12 guidance likely a non-event; Expect FY12 US$
revenue growth guidance of 18-20%; interest income
likely to significantly contribute to Rs EPS guidance
We expect the Infosys management to guide for 18%-20% US$ revenue
growth and Rs EPS of 140-142 for FY12 at the time of its 4QFY11 results.
The upper end of the revenue growth guidance band is unlikely to exceed 20% (in
USD), which in our view is likely to restrain EPS upgrades in the street.
• On EPS, we expect Infosys to guide for Rs 140-142, helped by a much stronger
contribution from interest income (a function of yield and cash). Notably,
interest income (pre-tax) as % of PBT is likely to peak in FY12 at just over
15% as yield (interest rate) firms up and Infosys’ cash level continues to
build. Interest income is thus likely to be a significant, contributory factor in
Infosys’ Rs EPS guidance, more than it has been in the past.
• Infosys does not provide quantitative guidance on operating (EBIT) margins but
we expect the company to qualitatively guide down on margins by at least ~100
bps Y/Y (relative to FY11). Such commentary on margins does not surprise us
and should not disappoint the market as Infosys assumes pricing in its guidance
to hold at current levels (Q4FY11) which seems a tad conservative in the face
of an improving pricing environment. Consensus expects operating margins to
remain flat Y/Y, which we believe is possible with better pricing through FY12.
• Revenue (USD) growth guidance of 18-20% implies a CQGR of 4% at the
upper end, broadly similar to that implied in the previous year’s (FY11) initial
guidance of 16-18%. This is also the same as the implied CQGR for Cognizant's
initial CY11 revenue guidance of at least 26% growth.
• All of this will translate into a likely EPS guidance of Rs. 140-142. Consensus is
currently at Rs.151, and we believe Infosys would have to beat its initial
guidance by about 7%-8%, which should be achievable, but a meaningful upside
from current consensus EPS is unlikely. Notably, over the last six years
(including FY11) the company has beaten initial consensus EPS by at least
10% only once and at least by 5% twice (since 2006)
• Separately, Nasscom forecasts 16-18% growth for FY12 revenue for the Indian
IT industry. Historically, large caps have grown significantly ahead of the
industry. We believe that Infosys should indicate through its guidance that it
expects to grow faster than the industry, a stance that it has taken. Hence, our
18-20% FY12 growth guidance estimate is logical in this context as well.
• We maintain our Neutral rating on the Infosys stock
India Equity Research Reports, IPO and Stock News
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Infosys Technologies Neutral
INFY.BO, INFO IN
FY12 guidance likely a non-event; Expect FY12 US$
revenue growth guidance of 18-20%; interest income
likely to significantly contribute to Rs EPS guidance
We expect the Infosys management to guide for 18%-20% US$ revenue
growth and Rs EPS of 140-142 for FY12 at the time of its 4QFY11 results.
The upper end of the revenue growth guidance band is unlikely to exceed 20% (in
USD), which in our view is likely to restrain EPS upgrades in the street.
• On EPS, we expect Infosys to guide for Rs 140-142, helped by a much stronger
contribution from interest income (a function of yield and cash). Notably,
interest income (pre-tax) as % of PBT is likely to peak in FY12 at just over
15% as yield (interest rate) firms up and Infosys’ cash level continues to
build. Interest income is thus likely to be a significant, contributory factor in
Infosys’ Rs EPS guidance, more than it has been in the past.
• Infosys does not provide quantitative guidance on operating (EBIT) margins but
we expect the company to qualitatively guide down on margins by at least ~100
bps Y/Y (relative to FY11). Such commentary on margins does not surprise us
and should not disappoint the market as Infosys assumes pricing in its guidance
to hold at current levels (Q4FY11) which seems a tad conservative in the face
of an improving pricing environment. Consensus expects operating margins to
remain flat Y/Y, which we believe is possible with better pricing through FY12.
• Revenue (USD) growth guidance of 18-20% implies a CQGR of 4% at the
upper end, broadly similar to that implied in the previous year’s (FY11) initial
guidance of 16-18%. This is also the same as the implied CQGR for Cognizant's
initial CY11 revenue guidance of at least 26% growth.
• All of this will translate into a likely EPS guidance of Rs. 140-142. Consensus is
currently at Rs.151, and we believe Infosys would have to beat its initial
guidance by about 7%-8%, which should be achievable, but a meaningful upside
from current consensus EPS is unlikely. Notably, over the last six years
(including FY11) the company has beaten initial consensus EPS by at least
10% only once and at least by 5% twice (since 2006)
• Separately, Nasscom forecasts 16-18% growth for FY12 revenue for the Indian
IT industry. Historically, large caps have grown significantly ahead of the
industry. We believe that Infosys should indicate through its guidance that it
expects to grow faster than the industry, a stance that it has taken. Hence, our
18-20% FY12 growth guidance estimate is logical in this context as well.
• We maintain our Neutral rating on the Infosys stock
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