Earnings Update - Infosys by CSEC Research

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Good Quarter but guidance disappoints…

Infosys Q3FY12 revenue was in line with our estimate at US$ 1,806mn which grew 3.4% sequentially in dollar terms and 4.4% in constant currency (CC) terms. The performance is appreciable on the revenue run rate front, given the fact that third quarter is a seasonally weak quarter. Blended volume grew by 3% QoQ and pricing grew by 0.8% in CC terms. Rupee that depreciated around 11% against the USD, boosted revenue run rate in rupee terms which sequentially grew by 14.8% to Rs. 92,980mn.

For Q4 FY12, the company has guided a flat sequential revenue growth in the range of US$ 1,806mn to US$ 1,810mn and EPS is expected to be US$ 0.81 citing the delay in decision making as a reason.

Outlook

Management’s flattish guidance for Q4FY12 surprised us given the fact that macro economic data points from the US show signs of improvement; this coupled with good deal wins and strong revenue run rate in the European region during the quarter.  We have downward revised our Q4FY12 revenue growth assumption from 4% earlier to 0.9%; this has a spillover effect on our FY13 revenue growth assumption to the tune of 320bps from 16% to 13.2%. We have assumed the exchange rate to be 48.77 and 50.62 (INR / USD) for FY12 and FY13 respectively. We expect Infosys to report an EPS of Rs.147.3 and Rs.165.4 in FY12 and FY13 respectively. We value Infosys at a 12-month target price of Rs. 2,976 based on 18X FY13E earnings and reiterate with a rating of ‘Outperformer’.

Regards,

CSEC Research