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High probability of cut in
revenue guidance; we see
upside to EPS guidance
Action: Possible negative reaction to guidance cut; accumulate on
declines
We expect 2QFY12 results to be in line with guidance on USD revenues
(4.9% q-q), to surprise positively on EBITDA margins (est +110bps q-q)
and come in ahead of guidance on EPS (est INR35.7 vs guidance of
INR30.2) driven by rupee depreciation. We see disappointments on a cut
in FY12F revenue guidance, which we think is highly probable given:
1) project delays/deferrals and discretionary spending curtailments; and
2) adverse cross-currency movements. Infosys has significant operational
scope to tide over demand moderation and we find comfort in valuations
which are already factoring in a possibility of guidance downgrade and
growth moderation to the low-teen levels in FY13F. Reiterate Buy.
Expect FY12F revenue guidance cut and EPS guidance raise
We expect a cut in USD revenue growth guidance from 18-20% to 16-18%
on: 1) growth moderation; and 2) cross-currency impacts. We think EPS
guidance is likely to be raised to around INR135 from INR128-130 earlier
on: 1) rupee depreciation; and 2) cost curtailments in a growth moderation
environment. Expect 3QFY12F revenue growth to be guided at 3-4% q-q.
Catalyst: Keeping revenue growth guidance unchanged would be a
positive trigger
Valuation: Raise TP to INR2,900, reiterate Buy
We raise our TP to INR2,900 (vs INR2,800 earlier) based on 18x FY13F
earnings on a marginal improvement in earnings on rupee depreciation.
Maintain Buy on better operational scope and comfort on valuations.
Maintain Buy, TP raised to INR2900
We continue to derive greater comfort from Infosys’ lower exposure to slowdown-prone
segments such as BFSI/Europe, better operational scope to counter growth moderation
impact and greater valuation comfort on lower future growth expectations being built into
valuations. Near-term stock movement might, however, remain sluggish on guidance
moderation and continued outperformance by TCS on revenue growth, in our view.
We believe our estimates of low-teen growth in FY13F build in moderation in growth
expectations. We maintain our Buy rating and raise our target price to INR2,900, based
on 18x FY13F earnings. This TP upgrade is largely driven by marginal upgrades to our
FY13F earnings driven by rupee depreciation. Our methodology is unchanged.
Our FY13F estimates are based on a USD-INR rate of 45 (vs spot rates of 49+). Betterthan-
assumed currency rates could provide upside to our earnings estimates. Infosys’
EPS sensitivity is ~1.5% for 1% rupee depreciation, on our estimates.
Valuation methodology
We value Infosys at 18x our FY13F earnings forecast of INR159.4, which is at a 10%
discount to its long-term average valuation. We believe the discount is justified on
heightened economic uncertainties, increased risk aversion and an impending
slowdown.
Risks to our valuation
The key risks are: 1) worse-than-expected slowdown and breakage of pricing discipline
in the industry; 2) rupee appreciation; 3) client-specific issues; and 4) an adverse ruling
in its pending B1 visa violation case in the US.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
High probability of cut in
revenue guidance; we see
upside to EPS guidance
Action: Possible negative reaction to guidance cut; accumulate on
declines
We expect 2QFY12 results to be in line with guidance on USD revenues
(4.9% q-q), to surprise positively on EBITDA margins (est +110bps q-q)
and come in ahead of guidance on EPS (est INR35.7 vs guidance of
INR30.2) driven by rupee depreciation. We see disappointments on a cut
in FY12F revenue guidance, which we think is highly probable given:
1) project delays/deferrals and discretionary spending curtailments; and
2) adverse cross-currency movements. Infosys has significant operational
scope to tide over demand moderation and we find comfort in valuations
which are already factoring in a possibility of guidance downgrade and
growth moderation to the low-teen levels in FY13F. Reiterate Buy.
Expect FY12F revenue guidance cut and EPS guidance raise
We expect a cut in USD revenue growth guidance from 18-20% to 16-18%
on: 1) growth moderation; and 2) cross-currency impacts. We think EPS
guidance is likely to be raised to around INR135 from INR128-130 earlier
on: 1) rupee depreciation; and 2) cost curtailments in a growth moderation
environment. Expect 3QFY12F revenue growth to be guided at 3-4% q-q.
Catalyst: Keeping revenue growth guidance unchanged would be a
positive trigger
Valuation: Raise TP to INR2,900, reiterate Buy
We raise our TP to INR2,900 (vs INR2,800 earlier) based on 18x FY13F
earnings on a marginal improvement in earnings on rupee depreciation.
Maintain Buy on better operational scope and comfort on valuations.
Maintain Buy, TP raised to INR2900
We continue to derive greater comfort from Infosys’ lower exposure to slowdown-prone
segments such as BFSI/Europe, better operational scope to counter growth moderation
impact and greater valuation comfort on lower future growth expectations being built into
valuations. Near-term stock movement might, however, remain sluggish on guidance
moderation and continued outperformance by TCS on revenue growth, in our view.
We believe our estimates of low-teen growth in FY13F build in moderation in growth
expectations. We maintain our Buy rating and raise our target price to INR2,900, based
on 18x FY13F earnings. This TP upgrade is largely driven by marginal upgrades to our
FY13F earnings driven by rupee depreciation. Our methodology is unchanged.
Our FY13F estimates are based on a USD-INR rate of 45 (vs spot rates of 49+). Betterthan-
assumed currency rates could provide upside to our earnings estimates. Infosys’
EPS sensitivity is ~1.5% for 1% rupee depreciation, on our estimates.
Valuation methodology
We value Infosys at 18x our FY13F earnings forecast of INR159.4, which is at a 10%
discount to its long-term average valuation. We believe the discount is justified on
heightened economic uncertainties, increased risk aversion and an impending
slowdown.
Risks to our valuation
The key risks are: 1) worse-than-expected slowdown and breakage of pricing discipline
in the industry; 2) rupee appreciation; 3) client-specific issues; and 4) an adverse ruling
in its pending B1 visa violation case in the US.
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