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Infosys Technologies Ltd. (INFY.BO) Rs3,306.00
Negative News – Estimates Under Review
4QFY11 below expectations, inline US$ revenue guidance
News
Infosys posted 4QFY11 revenues of Rs72.5bn (up 2% qoq) and net income of
Rs18.2bn, 2.7%/5.8% and 3.5%/7.3% below Bloomberg consensus and GSe
respectively, owing to weak volumes (down 0.9% qoq). EBIT margin
compressed by 120 bp due to a 5 ppt qoq drop in utilization (incl. trainees) to
67.7%. The insurance vertical fell 12.5% qoq but BFS / Retail continued to grow
strongly (up 4.6%/2% qoq); North America slowed to 0.4% qoq following 0.6%
in 3QFY11. Mr. Mohandas Pai, Board member and Director, HR resigned w.e.f.
June 11, 2011 to take up a larger role in public life.
Guidance: INFY guided for FY12 US$ revenue of $7.13 bn-$7.25 bn and
INR EPS guidance of Rs126.05-Rs128.21 (at Rs44.5/USD). Gross hiring
guidance is at 45k (on top of 43k additions in FY11) with 26k campus offers
already made. The company guided for wage hikes of 10%-12% for
offshore and 1%-2% for onsite staff. Owing to this and a strong INR, EBIT
margin may decline by 200-300 bps in FY12, as per management.
Analysis
1) INFY’s USD revenue guidance implies 18%-20% growth in FY12 (15.4%-
17.3% in INR terms) and supports our positive view of the IT services
sector globally. INR EPS guidance is below street expectations of Rs135-
Rs140 due to potential margin pressure from strong INR and wage hikes. 2)
Hiring guidance of 45k compares with 43k hires in FY11 and reaffirms
strong deal pipeline outlook. Utilization rate of 67.7% provides operational
lever to support pressure on margins. 3) Strong sequential growth in BFS
and retail indicates these two verticals will be the key growth drivers.
Implications
We maintain our Buy rating on the stock. We view its USD revenue and
hiring guidance positively and do not believe INFY’s results should be
taken as a read-across for the sector. INFY's earnings calls are scheduled
for 1400 hrs IST and 1800 hrs IST today. We place our estimates under
review pending clarity on (1) decline in 4Q volumes and pipeline strength
in FY12; (2) sluggish growth in US and in insurance vertical.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Infosys Technologies Ltd. (INFY.BO) Rs3,306.00
Negative News – Estimates Under Review
4QFY11 below expectations, inline US$ revenue guidance
News
Infosys posted 4QFY11 revenues of Rs72.5bn (up 2% qoq) and net income of
Rs18.2bn, 2.7%/5.8% and 3.5%/7.3% below Bloomberg consensus and GSe
respectively, owing to weak volumes (down 0.9% qoq). EBIT margin
compressed by 120 bp due to a 5 ppt qoq drop in utilization (incl. trainees) to
67.7%. The insurance vertical fell 12.5% qoq but BFS / Retail continued to grow
strongly (up 4.6%/2% qoq); North America slowed to 0.4% qoq following 0.6%
in 3QFY11. Mr. Mohandas Pai, Board member and Director, HR resigned w.e.f.
June 11, 2011 to take up a larger role in public life.
Guidance: INFY guided for FY12 US$ revenue of $7.13 bn-$7.25 bn and
INR EPS guidance of Rs126.05-Rs128.21 (at Rs44.5/USD). Gross hiring
guidance is at 45k (on top of 43k additions in FY11) with 26k campus offers
already made. The company guided for wage hikes of 10%-12% for
offshore and 1%-2% for onsite staff. Owing to this and a strong INR, EBIT
margin may decline by 200-300 bps in FY12, as per management.
Analysis
1) INFY’s USD revenue guidance implies 18%-20% growth in FY12 (15.4%-
17.3% in INR terms) and supports our positive view of the IT services
sector globally. INR EPS guidance is below street expectations of Rs135-
Rs140 due to potential margin pressure from strong INR and wage hikes. 2)
Hiring guidance of 45k compares with 43k hires in FY11 and reaffirms
strong deal pipeline outlook. Utilization rate of 67.7% provides operational
lever to support pressure on margins. 3) Strong sequential growth in BFS
and retail indicates these two verticals will be the key growth drivers.
Implications
We maintain our Buy rating on the stock. We view its USD revenue and
hiring guidance positively and do not believe INFY’s results should be
taken as a read-across for the sector. INFY's earnings calls are scheduled
for 1400 hrs IST and 1800 hrs IST today. We place our estimates under
review pending clarity on (1) decline in 4Q volumes and pipeline strength
in FY12; (2) sluggish growth in US and in insurance vertical.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Neutral
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