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India Equity Research Reports, IPO and Stock News
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Key Takeaways
Europe key to macro-economy, businesses, Infosys better prepared this time
While there have been no revisions to budgets so far, the possibility of revisions
cannot be ruled out in the near term. The situation in Europe will be the key
determinant of which way the macro-economy is headed, since a default in sovereign
debt would impact the financial sector and spread to other sectors. Compared with
2008, businesses are better prepared this time to respond to the situation of a
global meltdown; having braced themselves for a slow and gradual recovery.
Infosys (INFO) is confident of managing the tough times given: (1) a more diversified
portfolio of revenues, (2) better competitive positioning and (3) complete focus on
clients hereon, with the restructuring exercise behind it.
Governments' stomach for concerted action, US unemployment key worries
The key worry this time is the stomach of central banks for concerted action like
multiple rounds of Quantitative Easing, seen the last time.
The visa rhetoric has been an irritant in the recent past it may not be fully behind
the industry. As long as unemployment in the US is high, it is anybody's guess what
measures might be adopted to tackle it.
To manage efficiency, margins in absence of outperformance to guidance
INFO's had to give up some growth given high utilization rates (about 82%) in FY11,
after initially guiding at 25,000 gross hires. Consequently, INFO planned and guided
for 45,000 gross hires in FY12, keeping slack for growth above the guided 20%. But,
it may go slow on lateral hires as growth is unlikely to exceed guidance.
INFO will attempt to up the utilization rate (excluding trainees) to 78-82% targeted
band (up from 75% currently). As far as onsite is concerned, INFO will try and
ensure greater business from the consulting/SI engagement and hire more locals in
that segment, since utilization in consulting/SI is about 70%.
Margins to be in a band, Infosys to continue to command premium pricing
INFO is confident it will maintain margins within a narrow band at which it operated
over the past few years, as and when it exercises levers like increased offshoring,
improvement in revenue productivity and higher proportion of non-linear revenue.
INFO will continue to exercise pricing discipline and command a pricing premium
over its peers. The company has seen its revenue productivity improve over the
past four quarters, driven by like-to-like pricing increases and improved productivity.
Valuation and view
A slowdown in 4QCY11 deal signings will put FY13 estimates at risk. Notwithstanding
near-term stress we believe a slowdown will hit the industry only briefly, and it will
rebound as headwinds clear. Maintain Buy, with a target price of INR3,176 based on
20x FY13E EPS.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
Europe key to macro-economy, businesses, Infosys better prepared this time
While there have been no revisions to budgets so far, the possibility of revisions
cannot be ruled out in the near term. The situation in Europe will be the key
determinant of which way the macro-economy is headed, since a default in sovereign
debt would impact the financial sector and spread to other sectors. Compared with
2008, businesses are better prepared this time to respond to the situation of a
global meltdown; having braced themselves for a slow and gradual recovery.
Infosys (INFO) is confident of managing the tough times given: (1) a more diversified
portfolio of revenues, (2) better competitive positioning and (3) complete focus on
clients hereon, with the restructuring exercise behind it.
Governments' stomach for concerted action, US unemployment key worries
The key worry this time is the stomach of central banks for concerted action like
multiple rounds of Quantitative Easing, seen the last time.
The visa rhetoric has been an irritant in the recent past it may not be fully behind
the industry. As long as unemployment in the US is high, it is anybody's guess what
measures might be adopted to tackle it.
To manage efficiency, margins in absence of outperformance to guidance
INFO's had to give up some growth given high utilization rates (about 82%) in FY11,
after initially guiding at 25,000 gross hires. Consequently, INFO planned and guided
for 45,000 gross hires in FY12, keeping slack for growth above the guided 20%. But,
it may go slow on lateral hires as growth is unlikely to exceed guidance.
INFO will attempt to up the utilization rate (excluding trainees) to 78-82% targeted
band (up from 75% currently). As far as onsite is concerned, INFO will try and
ensure greater business from the consulting/SI engagement and hire more locals in
that segment, since utilization in consulting/SI is about 70%.
Margins to be in a band, Infosys to continue to command premium pricing
INFO is confident it will maintain margins within a narrow band at which it operated
over the past few years, as and when it exercises levers like increased offshoring,
improvement in revenue productivity and higher proportion of non-linear revenue.
INFO will continue to exercise pricing discipline and command a pricing premium
over its peers. The company has seen its revenue productivity improve over the
past four quarters, driven by like-to-like pricing increases and improved productivity.
Valuation and view
A slowdown in 4QCY11 deal signings will put FY13 estimates at risk. Notwithstanding
near-term stress we believe a slowdown will hit the industry only briefly, and it will
rebound as headwinds clear. Maintain Buy, with a target price of INR3,176 based on
20x FY13E EPS.
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