Infosys -Q2FY12 result highlights ::IDFC research,

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Infosys (CMP: Rs2679)            

Mkt Cap: Rs1.5tr; US$31.4bn       Bloomberg code (INFO IN)

Q2FY12 result highlights

Quarterly performance: Operating performance was largely in line with expectations. USD revenues grew by 4.5% qoq and 17% yoy to US$1,746m (IDFC exp: US$1,757m). Revenue growth was driven by volume growth of 4.4% qoq and 1% blended pricing improvement (CC/ constant currency terms) while cross-currency headwinds impact was 0.5%. In CC terms, onsite pricing was down 1.2% qoq and offshore pricing was up 3.5% qoq. Driven by the weak rupee, INR revenues grew ~8% qoq and ~17% yoy to Rs81bn. EBIT margins expanded by ~210bp due to rupee depreciation and higher utilization. Net profit was up ~11% qoq and ~10% yoy to Rs19.1bn (~2% ahead of our expectation).

Key positives: FY12 USD revenue growth guidance was reduced by just 90bp to 17.1-19.1%; INR EPS guidance was increased by ~12% (ahead of Street and our expectations). Forty-five clients were added in Q2, with 19 wins in investment areas. Hiring plans remain robust at ~45,000 gross for FY12 and planned ~23,000 campus offers for FY13.

Key negatives: Volume growth of 4.5% during the quarter was below our expectation of 6%.

Impact on financials

Despite the in-line quarter, we raise FY12/ 13E EPS estimates by ~6% to account for weaker rupee in 2HFY12/ FY13. We are now assuming an exchange rate of Rs48/USD for H2FY12 and Rs47/USD for FY13 – 6-10% lower than our previous assumptions. For FY12, we are building in ~19% USD revenue growth and ~100bp EBIT margin decline, leading to ~19% INR EPS growth, which iscloser to the lower end of guidance as we build Rs48/USD for H2FY12 (vs guidance of Rs49/USD). We are also introducing FY14 forecasts.

Valuations & view

While Infosys management was confident of near term revenues, we believe the macro uncertainty is likely to impact IT spend as also Indian IT industry growth rates from the Dec/ Mar quarter. We maintain our underweight stance on IT Services and recommend sticking to Tier1 names like Infosys. We reiterateOutperformer on the stock as the company is relatively well placed than peers amid the uncertain environment. Trading at ~19x FY12E and ~16x FY13E EPS, we value Infosys at a 12-month price target of Rs2,950 (from Rs2,800 earlier) based on 18x FY13E EPS.