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Infosys Technologies Buy
Mar-Q below expectation; FY12 revenue guidance in line
Infosys' USD revenue growth guidance of 18-20%yoy for FY12E is
healthy and indicates that the sector will continue to witness strong
demand growth in FY12E. Historically, Infosys has beaten its beginning
of the year revenue guidance by 5-19 ppts and as growth beats
expectations, we believe, margin concerns will be allayed. Maintain
buy rating on Infosys with a TP of INR4,000.
Mar-Q below expectation
The company reported USD revenues of 1,602mn (+1.1%qoq, 3.3% below
DBe). Though the overall reported pricing increased 2%qoq (vs DBe of
1.5%qoq), volumes declined 1%qoq (vs DBe of 3% growth). EBIT margins
at 29% were down 122bps qoq. This was 197bps lower than our expectation,
predominantly on account of a significant drop in utilisation (including
trainees) by 420bps qoq (vs DBe of 250bps qoq). Key negatives - qoq revenue
declines in discretionary services like package implementation, product
engineering services, etc. and declines in revenues from the telecom
vertical. Key positives - BFSI and manufacturing verticals lead growth.
FY12E USD revenue guidance in line; earnings guidance is extremely
conservative
Infosys' management expects FY12E US$ revenues to grow 18-20% yoy
to USD7.13-7.25bn. However, the EPS guidance of INR126-128 is below
our expectation and factors in a net margin decline of 200bpsyoy (vs DBe
of 70bps yoy decline). Prima facie, the company seems to have built in the
impact of (a) 2.2% appreciation of INR vs USD, (b) wage increase of 10-12%
yoy offshore and (c) lower utilisation. We believe the margin decline expectation
is overly conservative. We believe that at our USD revenue growth
expectation of 30%yoy for FY12E, most of these headwinds should be nullified
due to better utilisation.
Management changes for realignment of strategic focus
Member of board and head of administration and human resources, Mr.
Mohandas Pai, has resigned from the company. His resignation will be effective
June 11, 2011. While the loss of one of the senior members of the
board may be considered a big loss, it is important to note that the company
has also announced the appointment of Ravi Venkateshan as an additional
director of the company. Mr. Ravi Venkatesan was the Chairman of Microsoft
India. Under his leadership from 2004-2011, India became
Microsoft's second largest and one of its fastest growing geographies.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Infosys Technologies Buy
Mar-Q below expectation; FY12 revenue guidance in line
Infosys' USD revenue growth guidance of 18-20%yoy for FY12E is
healthy and indicates that the sector will continue to witness strong
demand growth in FY12E. Historically, Infosys has beaten its beginning
of the year revenue guidance by 5-19 ppts and as growth beats
expectations, we believe, margin concerns will be allayed. Maintain
buy rating on Infosys with a TP of INR4,000.
Mar-Q below expectation
The company reported USD revenues of 1,602mn (+1.1%qoq, 3.3% below
DBe). Though the overall reported pricing increased 2%qoq (vs DBe of
1.5%qoq), volumes declined 1%qoq (vs DBe of 3% growth). EBIT margins
at 29% were down 122bps qoq. This was 197bps lower than our expectation,
predominantly on account of a significant drop in utilisation (including
trainees) by 420bps qoq (vs DBe of 250bps qoq). Key negatives - qoq revenue
declines in discretionary services like package implementation, product
engineering services, etc. and declines in revenues from the telecom
vertical. Key positives - BFSI and manufacturing verticals lead growth.
FY12E USD revenue guidance in line; earnings guidance is extremely
conservative
Infosys' management expects FY12E US$ revenues to grow 18-20% yoy
to USD7.13-7.25bn. However, the EPS guidance of INR126-128 is below
our expectation and factors in a net margin decline of 200bpsyoy (vs DBe
of 70bps yoy decline). Prima facie, the company seems to have built in the
impact of (a) 2.2% appreciation of INR vs USD, (b) wage increase of 10-12%
yoy offshore and (c) lower utilisation. We believe the margin decline expectation
is overly conservative. We believe that at our USD revenue growth
expectation of 30%yoy for FY12E, most of these headwinds should be nullified
due to better utilisation.
Management changes for realignment of strategic focus
Member of board and head of administration and human resources, Mr.
Mohandas Pai, has resigned from the company. His resignation will be effective
June 11, 2011. While the loss of one of the senior members of the
board may be considered a big loss, it is important to note that the company
has also announced the appointment of Ravi Venkateshan as an additional
director of the company. Mr. Ravi Venkatesan was the Chairman of Microsoft
India. Under his leadership from 2004-2011, India became
Microsoft's second largest and one of its fastest growing geographies.
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