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We met the management of Infosys to understand the sustainability of demand and
likely levers for outperformance. The management maintained cautious stance on
the demand environment; however, it was not bearish. We expect the company to
deliver in-line quarter. We retain Infosys as our ‘top‐pick’ in the sector.
Tone continues to be cautious, but not bearish: The management retained their
cautious stance due to longer sales cycle, delay in decision-making and
worsening macro indicators. However, they highlighted that the deal pipeline
has not completely dried up. There are few deals in the pipeline that could
involve rebadging of clients’ employees. Infosys is likely to achieve a growth rate
in the mid-point of guidance. We don’t expect FY12 guidance (@cc) to be
lowered. We see pain from their troubled top-clients bottoming out.
Margin levers intact to deliver a positive surprise: Infosys is likely to deliver
positive surprises on margins by increasing utilization, flattening of pyramid (as
growth becomes steady and predictable) and cooling-off onsite costs. However,
we may witness uptick in product investment, absorbing some of the margin
tailwinds from currency depreciation and operating leverages.
Other highlights: 1) Two extra working days in Q2FY12 would restrict
seasonality impact 2) No ramp-down in projects 3) Delay in discretionary spend
4) Benefit driven from vendor consolidation in BFSI 5) Softness in Manufacturing
6) Telecom deal pipeline good 7) Strong growth momentum in Retail 7) Mid
single-digit growth looks sustainable 8) Pricing stable @cc 9) High teen growth in
BPO looks sustainable 9) Project ramp-ups are slow.
Valuation and Recommendation: We expect Infosys to do better than their
mid-range of guidance for Q3FY12. Moreover, we do not expect the company to
lower its FY12 guidance in constant currency terms. Also, the operating leverage
for the company is much stronger. Due to a thin hedge book (US$742m)
compared to TCS (US$2.6bn), we will see better performance by Infosys
compared to that of TCS. We reiterate our ‘BUY’ rating, with a target price of
Rs3,090, 19x FY13e earnings estimate.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We met the management of Infosys to understand the sustainability of demand and
likely levers for outperformance. The management maintained cautious stance on
the demand environment; however, it was not bearish. We expect the company to
deliver in-line quarter. We retain Infosys as our ‘top‐pick’ in the sector.
Tone continues to be cautious, but not bearish: The management retained their
cautious stance due to longer sales cycle, delay in decision-making and
worsening macro indicators. However, they highlighted that the deal pipeline
has not completely dried up. There are few deals in the pipeline that could
involve rebadging of clients’ employees. Infosys is likely to achieve a growth rate
in the mid-point of guidance. We don’t expect FY12 guidance (@cc) to be
lowered. We see pain from their troubled top-clients bottoming out.
Margin levers intact to deliver a positive surprise: Infosys is likely to deliver
positive surprises on margins by increasing utilization, flattening of pyramid (as
growth becomes steady and predictable) and cooling-off onsite costs. However,
we may witness uptick in product investment, absorbing some of the margin
tailwinds from currency depreciation and operating leverages.
Other highlights: 1) Two extra working days in Q2FY12 would restrict
seasonality impact 2) No ramp-down in projects 3) Delay in discretionary spend
4) Benefit driven from vendor consolidation in BFSI 5) Softness in Manufacturing
6) Telecom deal pipeline good 7) Strong growth momentum in Retail 7) Mid
single-digit growth looks sustainable 8) Pricing stable @cc 9) High teen growth in
BPO looks sustainable 9) Project ramp-ups are slow.
Valuation and Recommendation: We expect Infosys to do better than their
mid-range of guidance for Q3FY12. Moreover, we do not expect the company to
lower its FY12 guidance in constant currency terms. Also, the operating leverage
for the company is much stronger. Due to a thin hedge book (US$742m)
compared to TCS (US$2.6bn), we will see better performance by Infosys
compared to that of TCS. We reiterate our ‘BUY’ rating, with a target price of
Rs3,090, 19x FY13e earnings estimate.
good read, find another one here at http://www.slideshare.net/itsbuzzworld/infosys-falling-down-10765266
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