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Infosys Technologies (INFO)
Technology
Guidance blues. Infosys reiterated its FY2012E guidance after Dow Jones newswire
reported that the company may not achieve the upper end of its guided revenue
outlook. We believe that, slowdown or not, Infosys’ guidance at the upper end is
aggressive given its recent struggles and deteriorating macro outlook. We and the
Street are, in any case, building in a miss at the upper end. The aggressive guidance
should not distract from likely improvement in execution that will help close the gap in
growth with peers. BUY.
Infosys revenue outlook—upper end is aggressive
A quick recap of guidance: Infosys guided for 17-19% US$ revenue growth for FY2012E. Revenue
growth guidance is 3.2-5.4% for 3QFY12 and the implied guidance range is 3.3-5.6% for 4QFY12.
This surprised us, as it did the rest of the Street, given the seasonally weak 2H for IT business,
Infosys’ own execution challenges and deteriorating macro outlook. As a result, we and Street
modeled revenue growth below the upper end of Infosys’ guidance, a deviation from the past
trend.
Infosys reiterated its 3QFY12 and FY2012E guidance range after Dow Jones reports suggested that
the company may miss the upper end of the revenue outlook. However, the company did indicate
that decision making has slowed down further from the date of issuance of the last outlook. We
believe there could be further fine-tuning at the upper end; there could be a minor miss as well
but this is manageable as long as Rupee remains at the current levels.
What could have prompted aggressive guidance in the first place?
Macro headwinds were sufficient for Infosys to take a conservative view of it outlook. We can
think of the following factors that could have prompted the aggressive guidance (1) strong
contract wins which may ramp up in 3QFY12 and may spill over to 4QFY12; (2) A weak 1H,
setting a low base to work on for 2H growth; (3) A new normal where ‘within-range guidance
delivery’ is acceptable and (4) Guidance as a tool for setting a high bar internally. Please refer to
our noted dated 13th October titled “More thoughts on Infosys’ FY2012E guidance”
Some deterioration built in our estimates though not a freeze in decision making
We do not rule out further deterioration in the demand environment but this is already in the
numbers; our FY2013E revenue growth of 15% is already building in some amount of caution.
However, our estimates do not capture the possibility of a freeze in decision making, the
probability of which has increased from continued policy paralysis in the Eurozone. At the EPS level,
a miss on revenue growth can be mitigated if Re/US$ rate sustains above our assumption of 49.75
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Infosys Technologies (INFO)
Technology
Guidance blues. Infosys reiterated its FY2012E guidance after Dow Jones newswire
reported that the company may not achieve the upper end of its guided revenue
outlook. We believe that, slowdown or not, Infosys’ guidance at the upper end is
aggressive given its recent struggles and deteriorating macro outlook. We and the
Street are, in any case, building in a miss at the upper end. The aggressive guidance
should not distract from likely improvement in execution that will help close the gap in
growth with peers. BUY.
Infosys revenue outlook—upper end is aggressive
A quick recap of guidance: Infosys guided for 17-19% US$ revenue growth for FY2012E. Revenue
growth guidance is 3.2-5.4% for 3QFY12 and the implied guidance range is 3.3-5.6% for 4QFY12.
This surprised us, as it did the rest of the Street, given the seasonally weak 2H for IT business,
Infosys’ own execution challenges and deteriorating macro outlook. As a result, we and Street
modeled revenue growth below the upper end of Infosys’ guidance, a deviation from the past
trend.
Infosys reiterated its 3QFY12 and FY2012E guidance range after Dow Jones reports suggested that
the company may miss the upper end of the revenue outlook. However, the company did indicate
that decision making has slowed down further from the date of issuance of the last outlook. We
believe there could be further fine-tuning at the upper end; there could be a minor miss as well
but this is manageable as long as Rupee remains at the current levels.
What could have prompted aggressive guidance in the first place?
Macro headwinds were sufficient for Infosys to take a conservative view of it outlook. We can
think of the following factors that could have prompted the aggressive guidance (1) strong
contract wins which may ramp up in 3QFY12 and may spill over to 4QFY12; (2) A weak 1H,
setting a low base to work on for 2H growth; (3) A new normal where ‘within-range guidance
delivery’ is acceptable and (4) Guidance as a tool for setting a high bar internally. Please refer to
our noted dated 13th October titled “More thoughts on Infosys’ FY2012E guidance”
Some deterioration built in our estimates though not a freeze in decision making
We do not rule out further deterioration in the demand environment but this is already in the
numbers; our FY2013E revenue growth of 15% is already building in some amount of caution.
However, our estimates do not capture the possibility of a freeze in decision making, the
probability of which has increased from continued policy paralysis in the Eurozone. At the EPS level,
a miss on revenue growth can be mitigated if Re/US$ rate sustains above our assumption of 49.75
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