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Infosys Technologies
May languish near term
„Worst likely discounted, but stock could languish near term
Q1 tad shy of our revenue & margin estimates on challenges in telecom/jump in
onsite revs. Street likely disappointed on unchanged FY12 rev guidance and a
mere 1.5% raise to FY12 EPS guidance. However, the raise was broadly in-line
with our expectation given macro uncertainties and that it is only Q1. While we
trim EPS by 1-2% on slight cut to our margin estms, we believe Infy is on track to
meet our 18% 2-yr EPS CAGR forecast. Retain Buy and PO of Rs3,450.
On track to achieve revenue guidance
Co. is on track to meet our forecast FY12 USD rev growth forecast of 21.5% (vs
guidance of 18 to 20%) given strong hiring (9900 vs guidance of 6500 gross
hires), pick-up in onsite volumes at 7% qoq on likely new project starts and a
healthy 5.8% USD terms rev growth, ex-telecom.
Scope to beat margin guidance
We forecast 170bps margin decline for FY12 vs Infy’s guidance of 250bps decline
(narrowed from 300bps at start of year), given our view that Infy can a) tighten
utilization, at lows vs history and peers and b) achieve mix and productivity led
realization increase vs its assumption of flat realization vs 4Q levels.
Stock could languish near term; Continue to prefer TCS
Our slower FY12 EPS growth forecast of 15% vs 17% for TCS and EBITDA
growth forecast of 13% vs 22% for TCS, largely discounted in 10% PE discount to
TCS. However, we continue to prefer TCS on all round business momentum and
front ended growth. At Infy telecom declined 7% qoq this quarter due to client
specific issues and is unlikely to pick up until H2
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