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2QFY12 results
A benign currency assumption is driving a 6-8% FY12-14 earnings
upgrade in Infosys despite minor cuts in $-revenues. Going into 2HFY12,
we see Infosys on a weaker footing c.f. elevated street expectations, with
almost 5.5%QQ revenue growth needed in a seasonally weaker 2H amid
an adverse macro to meet the guidance. After the Rupee driven rally, the
stock is entering a period of consolidation when demand will be back in
focus, but will stay unclear. We expect no triggers for absolute upsides to
stocks till at least Jan’12 when the 2012 budgets will be closed. With
currency the only bulwark for the stock, we retain an Underperform.
FY12 revenue outlook seems aggressive and prone to cuts ahead
4.5%QQ growth in $-revenues in the quarter missed street expectations once
again. 2Q is the seasonally strongest quarter and growth expectations were
7%+ until 2-3 months back. The big revenue guidance range for 3Q/4QFY12
(Figs 2 & 3) was last seen in the global financial crisis and likely reflects the
uncertainty Infosys is seeing in the demand environment. A healthier revenue
performance in Sep-11 and a lower range of guidance for 3Q/4Q12 would
have made the FY12 revenue growth guidance more credible in our view.
With growth in each of the seasonally weaker quarters in 2HFY12 expected to
be higher than 1HFY12, we believe that FY12 revenue guidance remains
aggressive and the upper end will likely be missed.
Currency buoys Sep-11 margins and FY12 EPS guidance
Margin improvement of 200bpsQQ in the quarter was driven by a weaker
currency, improvement in utilisation, some boost from improvement in
offshore pricing and lower provisioning. We expect the margin trend to
continue in 3Q as well with another 200+bpsQQ benefit from the currency.
Forex losses of Rs330m hurt net profit in Sep-11 but will likely be reversed in
3Q. A re-set of currency (new assumption of Rs48.98 for 2H c.f. Rs44.5
earlier) is also driving a 10%+ increase in FY12 EPS guidance to Rs143-145.
Constructive view remains contingent on better demand visibility
Infosys had lost ground against peers TCS/HCLT/Cognizant, through 2011
with Infosys EPS having seen the highest cuts YTD. As a result, the stock was
a significant underweight in most investor portfolios. The current report albeit
driven by currency benefits will likely arrest and even reverse this trend in the
near term. However, we see these currency-led earnings revisions as late realignments versus the rally seen across tech stocks (especially Infosys) in the
last month. A constructive view on IT stocks remains contingent on FY13
revenue performance where we continue to see downside risks likely
impairing valuations as well. We would use the post-result strength to exit the
Infosys stock and retain an absolute negative bias on the sector.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
2QFY12 results
A benign currency assumption is driving a 6-8% FY12-14 earnings
upgrade in Infosys despite minor cuts in $-revenues. Going into 2HFY12,
we see Infosys on a weaker footing c.f. elevated street expectations, with
almost 5.5%QQ revenue growth needed in a seasonally weaker 2H amid
an adverse macro to meet the guidance. After the Rupee driven rally, the
stock is entering a period of consolidation when demand will be back in
focus, but will stay unclear. We expect no triggers for absolute upsides to
stocks till at least Jan’12 when the 2012 budgets will be closed. With
currency the only bulwark for the stock, we retain an Underperform.
FY12 revenue outlook seems aggressive and prone to cuts ahead
4.5%QQ growth in $-revenues in the quarter missed street expectations once
again. 2Q is the seasonally strongest quarter and growth expectations were
7%+ until 2-3 months back. The big revenue guidance range for 3Q/4QFY12
(Figs 2 & 3) was last seen in the global financial crisis and likely reflects the
uncertainty Infosys is seeing in the demand environment. A healthier revenue
performance in Sep-11 and a lower range of guidance for 3Q/4Q12 would
have made the FY12 revenue growth guidance more credible in our view.
With growth in each of the seasonally weaker quarters in 2HFY12 expected to
be higher than 1HFY12, we believe that FY12 revenue guidance remains
aggressive and the upper end will likely be missed.
Currency buoys Sep-11 margins and FY12 EPS guidance
Margin improvement of 200bpsQQ in the quarter was driven by a weaker
currency, improvement in utilisation, some boost from improvement in
offshore pricing and lower provisioning. We expect the margin trend to
continue in 3Q as well with another 200+bpsQQ benefit from the currency.
Forex losses of Rs330m hurt net profit in Sep-11 but will likely be reversed in
3Q. A re-set of currency (new assumption of Rs48.98 for 2H c.f. Rs44.5
earlier) is also driving a 10%+ increase in FY12 EPS guidance to Rs143-145.
Constructive view remains contingent on better demand visibility
Infosys had lost ground against peers TCS/HCLT/Cognizant, through 2011
with Infosys EPS having seen the highest cuts YTD. As a result, the stock was
a significant underweight in most investor portfolios. The current report albeit
driven by currency benefits will likely arrest and even reverse this trend in the
near term. However, we see these currency-led earnings revisions as late realignments versus the rally seen across tech stocks (especially Infosys) in the
last month. A constructive view on IT stocks remains contingent on FY13
revenue performance where we continue to see downside risks likely
impairing valuations as well. We would use the post-result strength to exit the
Infosys stock and retain an absolute negative bias on the sector.
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