Infosys Technologies- No bad news is good news! :Macquarie Research,

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Infosys Technologies
No bad news is good news!
Event
 Infosys stock up 7% post in-line 2Q. The company lowered its USD
revenue guidance by 100bps and significantly raised its INR EPS guidance
due to revised FX assumptions. We recognise that our FY13 USD revenue
growth estimate of 12% is conservative. Even so, we think it’s better to wait
and watch for initial trends on CY12 budgets before raising estimates.
Detailed financial and operational metrics for 2Q are provided in Figure 3.
Impact
 Conference Call Takeaways. The key points from the results discussion call
were: 1) No change in underlying volume volume/pricing assumptions to
arrive at the guidance; 2) No budget cuts/client ramp downs seen so far; 3)
Deal pipeline strong with 12 large deals and 27 transformation deals
underway; 4) New client additions (45) hit six-quarter high; 5) FY12 margin dip
to be in a range of 50-100bps; 6) Comfort utilization band planned at 78%-
81%, though actual could differ due to business realities.
 Is Infosys cutting pricing to win volume? Management categorically
denied media talk of “aggressive pricing” in new RFPs (Request for
Proposals) to gain volume share. The company maintains that it continues to
win business without compromising on its margin discipline.
 Growth evenly spread out across quarters in FY12. Historically, the 1H of
the fiscal year has seen the strongest volume momentum. Infosys believes
that this year it would be different and 2H growth would be similar to 1H.
Consistent spend through the year gives the clients more control over budget
spend in the current macro environment. (See Fig 1)
 Decision making delays remain a source of concern. Though Infosys is
yet to see any client budget cuts, management mentioned that they are
seeing delays in decision making on long term projects. End customers are
assessing the changing macro before committing to fresh spend.
 FY12 and 3Q guidance details. The company’s USD revenue growth
guidance for FY12 is now 17%-19% (vs 18%-20% earlier). The revised US$-
INR assumption of Rs49 is the prime reason for its raised FY12 EPS
guidance to Rs143-145 (vs Rs128-130 earlier). The company guided to 3-5%
US$ revenue growth in 3Q.
Earnings and target price revision
 Updating for 2QFY12 results. No change in TP.
Price catalyst
 12-month price target: Rs2,860.00 based on a DCF methodology.
 Catalyst: CY12 Client budget finalization and large deal wins
Action and recommendation
 OP maintained. With the sharp movement in Infosys’ stock price we
recommend HCL as a way to play the steady demand trend visible in results
today. TCS should maintain its volume growth momentum and is our top large
cap pick in the sector in India.