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Negatives priced in …
�� Expectations have likely tempered
• Infosys is the second largest IT company in India
• Revenue and net profit have grown at a CAGR of 28.1% & 27.6%
during FY04-FY11 period
• FY12E initial US$ revenue growth guidance of 18-20% was ahead
of consensus estimate
• Clients in core verticals such as banking financial services &
insurance (36% of FY11 revenues), retail (14.5%), &
manufacturing (20%) continue to spend
• Application development services grew 18.5% YoY & 4.3% QoQ
in Q4FY11 and stood at 16.1% of revenues. Suggests momentum
in discretionary spending
• Utilisation including trainees stands at a modest 68.4%, lower
compared to its two year historical average of 70.1%
• With reorganisation complete we believe focus disruption would
likely subside
�� Going ahead
• Total Indian IT exports could reach $165 billion in FY2020 from
$59 billion in FY2011.
• Infosys should be a key beneficiary of market share gains lead by
brand value, scale efficiencies, client base in excess of 500 and
client diversification across geographies
• This should help the company to report robust US$ revenue
growth during the same period
• Pricing improvement led by cost-of-living allowances (COLA)
adjustments & portfolio shift could help offset wage inflation
• Infosys continues to enjoy industry leading operating margins
Valuation
Demand environment continues to be robust led by discretionary
spending across verticals and service lines. Recent sharp correction in the
stock price was driven by heightened street expectation and provides
attractive entry points.
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