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Infosys Technologies Analyst Meet update
Infosys Technologies (Infosys) hosted their annual analyst meet on Thursday, August 18,
2011. The essence of the meeting was that macro-uncertainty is increasing but hasn’t
resulted in any micro-level challenges.
Demand is unscathed but cautiousness is increasing: The management clearly stated that
the US credit rating downgrade has not resulted into any kind of negative news from the
client portfolio side as of now. However, increasing macro-uncertainty is resulting in
escalation in cautiousness on spending. The clients are now focusing on one program at a
time rather than multiple initiatives. Also each program is broken into various parts
typically over intervals of six to eight months to gauge value creation.
The management indicated that nature of IT spending has evolved post the CY2008
financial system crisis. The corporate have moved to much disciplined pattern of spending
and not irrational spending like pre-CY2008. The various transformational initiatives
undertaken are outcome based.
Outlook & Valuation: The Infosys management who is known for its conservative stance
denied revisiting its revenue guidance of 19-21% YoY growth for FY2012 at this juncture
as it hasn’t seen any signs of budget cut or pricing cut. Also the company stated that there
is no change in their hiring plans and they would honor their offers. Infact, the company
has already begun its process of campus hiring for FY2013. We believe that amidst the
rising macro challenges though FY2012 won’t be impacted but rising uncertainty can pose
a threat to FY2013 expectation. In CY2008, due to US banking corporate failures, the
growth rates fell to as low as 3% (FY2010) and PE multiples contracted by ~45% from 18x
to 10x. However, it is too early to expect such a systemic downgrade in demand as no
negative news flow has come in the form of clients 1) laying off employees and/or 2)
cutting down their growth guidance and /or 3) downsizing their IT budgets or asking of
pricing cuts and/or 4) declaring corporate failure like CY2008. Also already the PE
multiples have already contracted by more than 42% from 26x to 15x (at CMP) just on the
“fears of possible global slowdown” which is unfair. We may revisit our estimates only in
case of negative cues as described above emerges. Hence we continue to value the
company at 20x FY2013 EPS of `160 with a target price of `3,200 and maintain a BUY on
this stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Infosys Technologies Analyst Meet update
Infosys Technologies (Infosys) hosted their annual analyst meet on Thursday, August 18,
2011. The essence of the meeting was that macro-uncertainty is increasing but hasn’t
resulted in any micro-level challenges.
Demand is unscathed but cautiousness is increasing: The management clearly stated that
the US credit rating downgrade has not resulted into any kind of negative news from the
client portfolio side as of now. However, increasing macro-uncertainty is resulting in
escalation in cautiousness on spending. The clients are now focusing on one program at a
time rather than multiple initiatives. Also each program is broken into various parts
typically over intervals of six to eight months to gauge value creation.
The management indicated that nature of IT spending has evolved post the CY2008
financial system crisis. The corporate have moved to much disciplined pattern of spending
and not irrational spending like pre-CY2008. The various transformational initiatives
undertaken are outcome based.
Outlook & Valuation: The Infosys management who is known for its conservative stance
denied revisiting its revenue guidance of 19-21% YoY growth for FY2012 at this juncture
as it hasn’t seen any signs of budget cut or pricing cut. Also the company stated that there
is no change in their hiring plans and they would honor their offers. Infact, the company
has already begun its process of campus hiring for FY2013. We believe that amidst the
rising macro challenges though FY2012 won’t be impacted but rising uncertainty can pose
a threat to FY2013 expectation. In CY2008, due to US banking corporate failures, the
growth rates fell to as low as 3% (FY2010) and PE multiples contracted by ~45% from 18x
to 10x. However, it is too early to expect such a systemic downgrade in demand as no
negative news flow has come in the form of clients 1) laying off employees and/or 2)
cutting down their growth guidance and /or 3) downsizing their IT budgets or asking of
pricing cuts and/or 4) declaring corporate failure like CY2008. Also already the PE
multiples have already contracted by more than 42% from 26x to 15x (at CMP) just on the
“fears of possible global slowdown” which is unfair. We may revisit our estimates only in
case of negative cues as described above emerges. Hence we continue to value the
company at 20x FY2013 EPS of `160 with a target price of `3,200 and maintain a BUY on
this stock.
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