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Cautiously optimistic
1QFY12 performance to be in line with guidance; estimates unchanged
Though the management expressed caution on the macro environment,
the situation is not translating into business weakness just yet.
Management expects 1QFY12 performance to be in line with the earlier
guidance of 2.6-3.6% QoQ revenue growth and ~400bp decline in margins.
The upper end of the full-year revenue growth guidance implies a robust
CQGR of ~6% over 2Q-4QFY12.
We keep our estimates unchanged; maintain our Buy recommendation.
Increasing concerns on macro environment, though no reflection on business
yet: Though the management expressed greater caution on the macro environment
than at the beginning of the quarter, the situation is not translating into business
weakness just yet; and trends in decision making thus far bode well for growth in
FY12. Post our interaction, we walked away with a higher degree of confidence in our
estimates though there was little incremental to justify an upgrade in estimates.
Expect 1QFY12 performance to be marginally ahead of guidance: Infosys had
guided 2.6-3.6% QoQ growth in USD revenues at the beginning of the quarter. Despite
strong activity on the ground on the demand front, beat on the guidance, if any, may
not be significant this quarter because of: (1) internal restructuring, and (2) the fact
that utilization continues to run hot in select units. Infosys had guided for ~300bp
decline in margins for FY12, with a greater hit of ~400bp (due to wage inflation) in
1QFY12. We expect revenue growth of 4% and a margin decline of 280bp in 1QFY12.
Utilization to be in a tight band in FY12 as long as growth remains in line: The
company expect utilization to be in a tight range all through FY12 and average ~76%,
with a floor set in 4QFY11. We believe that if growth exceeds the management
guidance, management's comfort on utilization remains till a ceiling of 80%. Also, we
believe that the new structure provides greater fungibility of resources. With fewer
larger verticals and also 'verticalization' of some geographies, there are fewer unitlevel
P&Ls than 16-17 earlier. This facilitates smoother mobilization of resources.
Should maintain full-year guidance, implying strong CQGR for remaining three
quarters: The company should maintain its full-year USD revenue growth guidance
of 18-20%. Assuming 4% QoQ growth (our estimate) in USD revenues in 1QFY12,
the upper end of the full-year guidance implies a CQGR of 5.8% over 2Q-4QFY12
(and a CQGR of 6% assuming the company's guided growth of 3.6%). Since 4Q is a
seasonally weak quarter, the bulk of growth has to come over the next two quarters.
Infosys has expressed comfort in achieving the same, which could also be reflected
in the company's 2QFY11 growth guidance.
Estimates largely unchanged post the interaction; maintain Buy: We expect
revenue growth of 4% QoQ for 1QFY12 and EBITDA margin decline of 280bp. For the
full year, we estimate 170bp decline in EBITDA margin v/s guidance of 300bp, expecting
better growth (23.5% in USD revenues v/s 20% guidance at the higher end) and
pricing to cushion the decline in margins. Maintain Buy, with a target price of INR3,360.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cautiously optimistic
1QFY12 performance to be in line with guidance; estimates unchanged
Though the management expressed caution on the macro environment,
the situation is not translating into business weakness just yet.
Management expects 1QFY12 performance to be in line with the earlier
guidance of 2.6-3.6% QoQ revenue growth and ~400bp decline in margins.
The upper end of the full-year revenue growth guidance implies a robust
CQGR of ~6% over 2Q-4QFY12.
We keep our estimates unchanged; maintain our Buy recommendation.
Increasing concerns on macro environment, though no reflection on business
yet: Though the management expressed greater caution on the macro environment
than at the beginning of the quarter, the situation is not translating into business
weakness just yet; and trends in decision making thus far bode well for growth in
FY12. Post our interaction, we walked away with a higher degree of confidence in our
estimates though there was little incremental to justify an upgrade in estimates.
Expect 1QFY12 performance to be marginally ahead of guidance: Infosys had
guided 2.6-3.6% QoQ growth in USD revenues at the beginning of the quarter. Despite
strong activity on the ground on the demand front, beat on the guidance, if any, may
not be significant this quarter because of: (1) internal restructuring, and (2) the fact
that utilization continues to run hot in select units. Infosys had guided for ~300bp
decline in margins for FY12, with a greater hit of ~400bp (due to wage inflation) in
1QFY12. We expect revenue growth of 4% and a margin decline of 280bp in 1QFY12.
Utilization to be in a tight band in FY12 as long as growth remains in line: The
company expect utilization to be in a tight range all through FY12 and average ~76%,
with a floor set in 4QFY11. We believe that if growth exceeds the management
guidance, management's comfort on utilization remains till a ceiling of 80%. Also, we
believe that the new structure provides greater fungibility of resources. With fewer
larger verticals and also 'verticalization' of some geographies, there are fewer unitlevel
P&Ls than 16-17 earlier. This facilitates smoother mobilization of resources.
Should maintain full-year guidance, implying strong CQGR for remaining three
quarters: The company should maintain its full-year USD revenue growth guidance
of 18-20%. Assuming 4% QoQ growth (our estimate) in USD revenues in 1QFY12,
the upper end of the full-year guidance implies a CQGR of 5.8% over 2Q-4QFY12
(and a CQGR of 6% assuming the company's guided growth of 3.6%). Since 4Q is a
seasonally weak quarter, the bulk of growth has to come over the next two quarters.
Infosys has expressed comfort in achieving the same, which could also be reflected
in the company's 2QFY11 growth guidance.
Estimates largely unchanged post the interaction; maintain Buy: We expect
revenue growth of 4% QoQ for 1QFY12 and EBITDA margin decline of 280bp. For the
full year, we estimate 170bp decline in EBITDA margin v/s guidance of 300bp, expecting
better growth (23.5% in USD revenues v/s 20% guidance at the higher end) and
pricing to cushion the decline in margins. Maintain Buy, with a target price of INR3,360.
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