Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
In the wake of weak 4Q11 results, we expect the stock to remain under pressure
in the near term. However, given a 10% correction after the results, continued
expectation of robust demand and margins exceeding management guidance for
FY12, we retain a Buy with a target price of Rs3,300 (down from Rs3,750).
We maintain a Buy, but expect near-term pressure on the stock
Infosysís stock corrected by 10% after a weak set of 4Q11 results and the companyís FY12F
EPS guidance. However, we believe revenue visibility remains healthy given significant
exposure to high-growth verticals/services. This is reflected in Infosysís FY12 US$ revenue
growth guidance of 18-20%. Rupee EPS growth guidance of 5.5-7.3% for FY12F is
disappointing, but we expect Infosys to outperform the guidance materially through
1) operating leverage from higher-than-guided revenues; 2) pricing uptick; and 3) benefits
arising from its employee pyramid. Given a weak 4Q11 and lower-than-expected margin
guidance for FY12F, we reduce our US$ revenue forecasts by c3% for FY12 and FY13 and
our EPS 7-8%. We revise our target PE multiple from 20x FY13F to 19x to factor in a
declining margin profile, and we reduce our target price to Rs3,300. We reiterate our Buy
rating and believe near-term pressure on the stock is a buying opportunity.
FY12 guidance: we believe extreme conservatism is built into margin guidance
US$ revenue growth guidance of 18-20% was in line with our expectations, although 1Q12
guidance of 2.5-3.5% growth makes it back-ended (5.5-5.9% CQGR over 2Q12-4Q12F). The
big negative surprise was EPS guidance of Rs126.05-128.21, which was much lower than
our expectation of Rs134-138. The guidance builds in a 300bp drop in the operating margin.
We build in a lower c130bp margin drop, given the various margin levers explained above.
4Q11 results: subdued performance on both top line and margins
4Q11 revenue of US$1.60bn rose 1.1% vs guidance of 1.0-2.0%. Ex cross-currency, Infosys
missed the lower end of its guidance. A volume drop of 1.4% qoq was attributed to seasonal
weakness and delays in project start-ups. Average realisations rose 2.4%, largely due to
cost-of-living adjustments and price increases. The EBIT margin of 29.0% in 4Q11 was down
122bp qoq (RBS:30.5%) as utilisation dropped 427bp. Other income was up 43.1% qoq to
Reiterate Buy
We reduce our TP to Rs3,300 from Rs3,750 given weak 4Q11 results and FY12 EPS
guidance. However, given a 10% correction after the results, we view further potential nearterm weakness as a buying opportunity.
Reducing our FY12/13F EPS by 7%/8%; TP drops to Rs3,300 from Rs3,750
We are reducing our US$ revenue forecast 3% each for FY12/FY13, building in the weak 4Q11
revenue growth. We are reducing our EBITDA margin forecasts for FY12/FY13 by 154bp/150bp,
building in up-front investments in hiring, as well as in non-linear initiatives. Consequently, our
EPS forecasts for FY12/FY13 are down by 7%/8%.
We revise our target PE multiple for Infosys from 20x FY13F to 19x to factor in a declining margin
profile. Consequently, given the lower target multiple and a cut in our EPS forecasts, our target
price is reduced to Rs3,300 from Rs3,750. We expect the stock to be weak in the near term, and
we believe any further meaningful corrections would present a buying opportunity.
A key event to watch would be the announcement on 30 April 2011 of the companyís plans for the
leadership succession after Mr NR Narayana Murthyís retirement as chairman of the board in
August 2011.
Key risks to our rating and price target
Key downside risks to our PE-based target price are: 1) rupee appreciation beyond the levels that
we assume and/or adverse cross-currency movement; 2) lower pricing than those built into our
assumptions; and 3) strong regulatory action against outsourcing in Infosysís key geographic
markets.
Rs4.15bn with forex gains of Rs410m (3Q11:Rs160m). PAT rose 2.1% qoq to Rs18.18bn.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
In the wake of weak 4Q11 results, we expect the stock to remain under pressure
in the near term. However, given a 10% correction after the results, continued
expectation of robust demand and margins exceeding management guidance for
FY12, we retain a Buy with a target price of Rs3,300 (down from Rs3,750).
We maintain a Buy, but expect near-term pressure on the stock
Infosysís stock corrected by 10% after a weak set of 4Q11 results and the companyís FY12F
EPS guidance. However, we believe revenue visibility remains healthy given significant
exposure to high-growth verticals/services. This is reflected in Infosysís FY12 US$ revenue
growth guidance of 18-20%. Rupee EPS growth guidance of 5.5-7.3% for FY12F is
disappointing, but we expect Infosys to outperform the guidance materially through
1) operating leverage from higher-than-guided revenues; 2) pricing uptick; and 3) benefits
arising from its employee pyramid. Given a weak 4Q11 and lower-than-expected margin
guidance for FY12F, we reduce our US$ revenue forecasts by c3% for FY12 and FY13 and
our EPS 7-8%. We revise our target PE multiple from 20x FY13F to 19x to factor in a
declining margin profile, and we reduce our target price to Rs3,300. We reiterate our Buy
rating and believe near-term pressure on the stock is a buying opportunity.
FY12 guidance: we believe extreme conservatism is built into margin guidance
US$ revenue growth guidance of 18-20% was in line with our expectations, although 1Q12
guidance of 2.5-3.5% growth makes it back-ended (5.5-5.9% CQGR over 2Q12-4Q12F). The
big negative surprise was EPS guidance of Rs126.05-128.21, which was much lower than
our expectation of Rs134-138. The guidance builds in a 300bp drop in the operating margin.
We build in a lower c130bp margin drop, given the various margin levers explained above.
4Q11 results: subdued performance on both top line and margins
4Q11 revenue of US$1.60bn rose 1.1% vs guidance of 1.0-2.0%. Ex cross-currency, Infosys
missed the lower end of its guidance. A volume drop of 1.4% qoq was attributed to seasonal
weakness and delays in project start-ups. Average realisations rose 2.4%, largely due to
cost-of-living adjustments and price increases. The EBIT margin of 29.0% in 4Q11 was down
122bp qoq (RBS:30.5%) as utilisation dropped 427bp. Other income was up 43.1% qoq to
Reiterate Buy
We reduce our TP to Rs3,300 from Rs3,750 given weak 4Q11 results and FY12 EPS
guidance. However, given a 10% correction after the results, we view further potential nearterm weakness as a buying opportunity.
Reducing our FY12/13F EPS by 7%/8%; TP drops to Rs3,300 from Rs3,750
We are reducing our US$ revenue forecast 3% each for FY12/FY13, building in the weak 4Q11
revenue growth. We are reducing our EBITDA margin forecasts for FY12/FY13 by 154bp/150bp,
building in up-front investments in hiring, as well as in non-linear initiatives. Consequently, our
EPS forecasts for FY12/FY13 are down by 7%/8%.
We revise our target PE multiple for Infosys from 20x FY13F to 19x to factor in a declining margin
profile. Consequently, given the lower target multiple and a cut in our EPS forecasts, our target
price is reduced to Rs3,300 from Rs3,750. We expect the stock to be weak in the near term, and
we believe any further meaningful corrections would present a buying opportunity.
A key event to watch would be the announcement on 30 April 2011 of the companyís plans for the
leadership succession after Mr NR Narayana Murthyís retirement as chairman of the board in
August 2011.
Key risks to our rating and price target
Key downside risks to our PE-based target price are: 1) rupee appreciation beyond the levels that
we assume and/or adverse cross-currency movement; 2) lower pricing than those built into our
assumptions; and 3) strong regulatory action against outsourcing in Infosysís key geographic
markets.
Rs4.15bn with forex gains of Rs410m (3Q11:Rs160m). PAT rose 2.1% qoq to Rs18.18bn.
No comments:
Post a Comment