Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
For 4QFY2011, Infosys reported results that were below street as well as our
expectations. The sluggish performance was because of lack of budget flush from
few clients due to unstable macros resulting in lower utilisations. However,
management’s commentary on FY2012 outlook is upbeat with strong hiring
numbers (~45,000 in FY2012), cooling attrition, emergence of higher number of
transformational engagements and positive client budgets across verticals. Hence,
we expect revenue growth (in USD terms) to record a 23.4% CAGR over
FY2011–13E. We maintain our Accumulate view on the stock.
Disappointing results: Infosys reported revenue at US$1,602mn, a 1.1% qoq
increase – marginally above the lower end of its revenue guidance of
US$1,601mn – with a 1.4% qoq decline in volumes. Revenue growth in INR terms
came in higher by 2.0% qoq at `7,250cr, on the back of INR depreciation of
1.0% qoq against USD. The company’s EBITDA and EBIT margins declined by
120bp and 122bp qoq to 32.1% and 29.0%, respectively, due to poor utilisation
level, which dropped off by 550bp qoq to 75.2% (excluding trainees) in
4QFY2011.
Outlook and valuation: Management is witnessing a surge in its deal pipeline and
has bagged four transformational deals of size of US$30mn plus and six large
deals of US$150mn plus. Further, management has indicated 45,000 as the
gross hiring number for FY2012, of which ~27,000 people will be employed to
map into growth and the rest to backfill attrition. This translates into ~21% growth
in headcount for incremental work. However, margin headwinds ex-currency such
as 1) weak utilisation due to strong fresher hiring and 2) wage inflation of
10–12% offshore and 2–3% onsite is likely to pull down margins. Thus, we expect
Infosys to continue to report strong revenue (INR terms) CAGR of 21.3% but lower
CAGR in EBITDA and PAT at 16.4% and 17.0%, respectively, over FY2011–13E.
We maintain our Accumulate view on the stock with a target price of `3,435.
Muted show
For 4QFY2011, Infosys reported revenue of US$1,602mn, tepid growth of 1.1%
qoq, primarily on the back of a 1.4% qoq decline in volumes. Also, revenue from
the BFSI vertical, the company’s anchor vertical, declined by 0.7% qoq in constant
currency (CC) terms. This was primarily because of unstable macros, which led to
delays in budget flush from few BFSI clients. The cross-currency movement
benefited USD revenue by 0.3%. Revenue in CC terms came in at US$1,597mn,
up merely 0.8% qoq.
The 1.4% qoq volume decline was primarily driven by a 2.0% qoq dip in offshore
volumes; onsite volumes declined by 0.2% qoq during the quarter.
The company witnessed portfolio shift towards higher revenue per employee type
of services such as consulting and package implementation, infrastructure
management and system integration. Thus, revenue growth stood higher than
volume growth at 1.1% qoq due to productivity gain of 1.1% qoq in addition to
cross-currency benefits of 0.3% derived due to USD depreciation of 1.3, 0.6% and
1.8% qoq as against the GBP, Euro and AUD, respectively.
In INR terms, revenue came in at `7,250cr, registering just 2.0% qoq growth,
aided by INR depreciation of 1.0% qoq against the USD in 4QFY2011.
Subdued growth across service verticals, industries and
geographies
Discretionary services posted decent growth during the quarter, with system
integration services (contributed 6.1% to overall revenue) leading the pack with
3.7% qoq growth. Infrastructure management services (contributed 5.6% to overall
revenue) and product engineering services (contributed 25.4% to overall revenue)
grew by 2.0% and 0.1% qoq, respectively. Consulting and package
implementation services, one of the anchor service lines for the company
(contributed 22.0% to overall revenue), registered a decline of 0.2% qoq during
the quarter. However, management indicated that the company is witnessing
decent traction in this service line. The company currently has a base of 4,000
consultants, which it is trying to increase to 10,000 in the next three years.
Application development and maintenance (ADM) services (contributed 38.1% to
overall revenue) registered 2.0% qoq growth in revenue. BPO also registered
growth during the quarter, up 5.3% qoq, with higher share of non-voice
component revenue.
Industry wise, growth rates were quiet. The anchor BFSI vertical (contributed 35.7%
to revenue), the company’s growth driver since the last few quarters, declined by
0.7% qoq in CC terms. However, going ahead, the company is seeing good
traction in this vertical, as more and more spend towards risk management, fraud
prevention, regulatory compliance and analytics is gaining momentum along with
persistent spend in work related to M&As.
Manufacturing (contributed 20.4% to revenue) registered modest 5.0% qoq growth
(CC terms), extending strong 8.6% qoq growth recorded in 3QFY2011, with
continued spend coming in for product engineering services, supply-chain
management and consulting to drive cost efficiencies and targeting to go global.
Retail (contributed 14.5% to revenue) grew by 1.0% qoq (CC terms) during the
quarter. This vertical is witnessing good traction due to clients looking at
multi-channel integration to encash on the digital consumer behaviour.
Telecom (contributed 11.9% to revenue) remained sluggish during the quarter,
especially in North America, declining by 4.8% qoq (CC terms).
Hiring spree continues
Infosys added 8,930 gross employees in 4QFY2011, of which 3,591 were lateral
additions. This was primarily because of continuing buoyant demand foreseen for
the coming quarters. Management plans to hire ~45,000 employees in FY2012.
On LTM basis, attrition rate declined to 17.0% in 4QFY2011 from 17.5% in
3QFY2011.
During the quarter, Infosys announced wage hike of 10–12% to offshore
employees and 2–3% to onsite employees, effective April 1, 2011; this will impact
the company’s operating margin by 300bp in 1QFY2012.
Client pyramid enhances
Infosys added 34 new clients during the quarter, of which seven are Fortune 500
companies, indicating its focus on qualitative client addition. Out of the total client
base, 154 clients are Fortune 500 companies. During the quarter, Infosys added
five new clients in the US$20mn–50mn bracket and one client moved from the
US$50mn–100mn bracket to the former bracket. Two clients were added in the
US$5mn–10mn bracket. Nine clients were added in the US$10mn–20mn bracket.
Active client base of the company increased to 620 in 4QFY2011 from 612 in
3QFY2011.
Annual guidance
Infosys has guided for 18–20% yoy growth in USD revenue to
US$7.13bn–US$7.25bn for FY2012, which is in line with our expectations.
EPS guidance for FY2012 stands at US$2.83–US$2.88, growth of 8–10% yoy.
EPS growth is lower compared to revenue growth because of continued
investments and assuming INR appreciation against USD of 2% yoy for FY2012.
In INR terms, FY2012 revenue is expected to come in at `31,727cr–`32,270cr,
growth of 15.4–17.3% yoy. EPS guidance, in INR terms, stands at
`126.05–`128.21, growth of 5.5–7.3% yoy.
On the margin front, the company expects a 300bp yoy decline in margins due to
the following factors: 1) 100bp negative impact due to INR appreciation against
USD, assuming average rate of 44.50 for FY2012, 2)120–130bp negative impact
due to utilisation coming off on account of hiring to maintain bench so as to map
into any uptick in demand coming in and 3) 70–80bp negative impact due to
higher employee costs.
Outlook and valuation
Management is witnessing a surge in its deal pipeline and has bagged four
transformational deals of size of US$30mn plus and six large deals of US$150mn
plus. Further, management has indicated 45,000 as the gross hiring number for
FY2012, of which ~27,000 people will be employed to map into growth and the
rest to backfill attrition. This translates into ~21% growth in headcount for
incremental work. However, margin headwinds ex-currency such as 1) weak
utilisation due to strong fresher hiring and 2) wage inflation of 10–12% offshore
and 2–3% onsite is expected to pull down margins. Thus, we expect Infosys to
continue to report strong revenue (INR terms) CAGR of 21.3% but lower CAGR in
EBITDA and PAT at 16.4% and 17.0%, respectively, over FY2011–13E.
On the basis of poor operational performance in 4QFY2011 and muted earnings
guidance for FY2012 due to the above-mentioned headwinds, we have cut our
EPS estimates for FY2012 and FY2013 to `138.6 and `163.6, respectively. Thus,
we revise our target price downwards to `3,435, maintaining our Accumulate view
on the stock – valuing the stock at 21x FY2013E EPS of `163.6
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
For 4QFY2011, Infosys reported results that were below street as well as our
expectations. The sluggish performance was because of lack of budget flush from
few clients due to unstable macros resulting in lower utilisations. However,
management’s commentary on FY2012 outlook is upbeat with strong hiring
numbers (~45,000 in FY2012), cooling attrition, emergence of higher number of
transformational engagements and positive client budgets across verticals. Hence,
we expect revenue growth (in USD terms) to record a 23.4% CAGR over
FY2011–13E. We maintain our Accumulate view on the stock.
Disappointing results: Infosys reported revenue at US$1,602mn, a 1.1% qoq
increase – marginally above the lower end of its revenue guidance of
US$1,601mn – with a 1.4% qoq decline in volumes. Revenue growth in INR terms
came in higher by 2.0% qoq at `7,250cr, on the back of INR depreciation of
1.0% qoq against USD. The company’s EBITDA and EBIT margins declined by
120bp and 122bp qoq to 32.1% and 29.0%, respectively, due to poor utilisation
level, which dropped off by 550bp qoq to 75.2% (excluding trainees) in
4QFY2011.
Outlook and valuation: Management is witnessing a surge in its deal pipeline and
has bagged four transformational deals of size of US$30mn plus and six large
deals of US$150mn plus. Further, management has indicated 45,000 as the
gross hiring number for FY2012, of which ~27,000 people will be employed to
map into growth and the rest to backfill attrition. This translates into ~21% growth
in headcount for incremental work. However, margin headwinds ex-currency such
as 1) weak utilisation due to strong fresher hiring and 2) wage inflation of
10–12% offshore and 2–3% onsite is likely to pull down margins. Thus, we expect
Infosys to continue to report strong revenue (INR terms) CAGR of 21.3% but lower
CAGR in EBITDA and PAT at 16.4% and 17.0%, respectively, over FY2011–13E.
We maintain our Accumulate view on the stock with a target price of `3,435.
Muted show
For 4QFY2011, Infosys reported revenue of US$1,602mn, tepid growth of 1.1%
qoq, primarily on the back of a 1.4% qoq decline in volumes. Also, revenue from
the BFSI vertical, the company’s anchor vertical, declined by 0.7% qoq in constant
currency (CC) terms. This was primarily because of unstable macros, which led to
delays in budget flush from few BFSI clients. The cross-currency movement
benefited USD revenue by 0.3%. Revenue in CC terms came in at US$1,597mn,
up merely 0.8% qoq.
The 1.4% qoq volume decline was primarily driven by a 2.0% qoq dip in offshore
volumes; onsite volumes declined by 0.2% qoq during the quarter.
The company witnessed portfolio shift towards higher revenue per employee type
of services such as consulting and package implementation, infrastructure
management and system integration. Thus, revenue growth stood higher than
volume growth at 1.1% qoq due to productivity gain of 1.1% qoq in addition to
cross-currency benefits of 0.3% derived due to USD depreciation of 1.3, 0.6% and
1.8% qoq as against the GBP, Euro and AUD, respectively.
In INR terms, revenue came in at `7,250cr, registering just 2.0% qoq growth,
aided by INR depreciation of 1.0% qoq against the USD in 4QFY2011.
Subdued growth across service verticals, industries and
geographies
Discretionary services posted decent growth during the quarter, with system
integration services (contributed 6.1% to overall revenue) leading the pack with
3.7% qoq growth. Infrastructure management services (contributed 5.6% to overall
revenue) and product engineering services (contributed 25.4% to overall revenue)
grew by 2.0% and 0.1% qoq, respectively. Consulting and package
implementation services, one of the anchor service lines for the company
(contributed 22.0% to overall revenue), registered a decline of 0.2% qoq during
the quarter. However, management indicated that the company is witnessing
decent traction in this service line. The company currently has a base of 4,000
consultants, which it is trying to increase to 10,000 in the next three years.
Application development and maintenance (ADM) services (contributed 38.1% to
overall revenue) registered 2.0% qoq growth in revenue. BPO also registered
growth during the quarter, up 5.3% qoq, with higher share of non-voice
component revenue.
Industry wise, growth rates were quiet. The anchor BFSI vertical (contributed 35.7%
to revenue), the company’s growth driver since the last few quarters, declined by
0.7% qoq in CC terms. However, going ahead, the company is seeing good
traction in this vertical, as more and more spend towards risk management, fraud
prevention, regulatory compliance and analytics is gaining momentum along with
persistent spend in work related to M&As.
Manufacturing (contributed 20.4% to revenue) registered modest 5.0% qoq growth
(CC terms), extending strong 8.6% qoq growth recorded in 3QFY2011, with
continued spend coming in for product engineering services, supply-chain
management and consulting to drive cost efficiencies and targeting to go global.
Retail (contributed 14.5% to revenue) grew by 1.0% qoq (CC terms) during the
quarter. This vertical is witnessing good traction due to clients looking at
multi-channel integration to encash on the digital consumer behaviour.
Telecom (contributed 11.9% to revenue) remained sluggish during the quarter,
especially in North America, declining by 4.8% qoq (CC terms).
Hiring spree continues
Infosys added 8,930 gross employees in 4QFY2011, of which 3,591 were lateral
additions. This was primarily because of continuing buoyant demand foreseen for
the coming quarters. Management plans to hire ~45,000 employees in FY2012.
On LTM basis, attrition rate declined to 17.0% in 4QFY2011 from 17.5% in
3QFY2011.
During the quarter, Infosys announced wage hike of 10–12% to offshore
employees and 2–3% to onsite employees, effective April 1, 2011; this will impact
the company’s operating margin by 300bp in 1QFY2012.
Client pyramid enhances
Infosys added 34 new clients during the quarter, of which seven are Fortune 500
companies, indicating its focus on qualitative client addition. Out of the total client
base, 154 clients are Fortune 500 companies. During the quarter, Infosys added
five new clients in the US$20mn–50mn bracket and one client moved from the
US$50mn–100mn bracket to the former bracket. Two clients were added in the
US$5mn–10mn bracket. Nine clients were added in the US$10mn–20mn bracket.
Active client base of the company increased to 620 in 4QFY2011 from 612 in
3QFY2011.
Annual guidance
Infosys has guided for 18–20% yoy growth in USD revenue to
US$7.13bn–US$7.25bn for FY2012, which is in line with our expectations.
EPS guidance for FY2012 stands at US$2.83–US$2.88, growth of 8–10% yoy.
EPS growth is lower compared to revenue growth because of continued
investments and assuming INR appreciation against USD of 2% yoy for FY2012.
In INR terms, FY2012 revenue is expected to come in at `31,727cr–`32,270cr,
growth of 15.4–17.3% yoy. EPS guidance, in INR terms, stands at
`126.05–`128.21, growth of 5.5–7.3% yoy.
On the margin front, the company expects a 300bp yoy decline in margins due to
the following factors: 1) 100bp negative impact due to INR appreciation against
USD, assuming average rate of 44.50 for FY2012, 2)120–130bp negative impact
due to utilisation coming off on account of hiring to maintain bench so as to map
into any uptick in demand coming in and 3) 70–80bp negative impact due to
higher employee costs.
Outlook and valuation
Management is witnessing a surge in its deal pipeline and has bagged four
transformational deals of size of US$30mn plus and six large deals of US$150mn
plus. Further, management has indicated 45,000 as the gross hiring number for
FY2012, of which ~27,000 people will be employed to map into growth and the
rest to backfill attrition. This translates into ~21% growth in headcount for
incremental work. However, margin headwinds ex-currency such as 1) weak
utilisation due to strong fresher hiring and 2) wage inflation of 10–12% offshore
and 2–3% onsite is expected to pull down margins. Thus, we expect Infosys to
continue to report strong revenue (INR terms) CAGR of 21.3% but lower CAGR in
EBITDA and PAT at 16.4% and 17.0%, respectively, over FY2011–13E.
On the basis of poor operational performance in 4QFY2011 and muted earnings
guidance for FY2012 due to the above-mentioned headwinds, we have cut our
EPS estimates for FY2012 and FY2013 to `138.6 and `163.6, respectively. Thus,
we revise our target price downwards to `3,435, maintaining our Accumulate view
on the stock – valuing the stock at 21x FY2013E EPS of `163.6
No comments:
Post a Comment