Huge negative surprise; USD revenue growth guidance cut to 5%
USD revenue decline of 1.1%QoQ – Huge negative surprise: Infosys revenue grew 8.6% QoQ to Rs96.1bn for Q1FY13 (upper guidance of Rs91bn) in rupee terms, whereas revenue dipped to USD1,752mn below guidance of USD1,771mn in USD terms. The EBIT margin dipped 190bps QoQ to 28%despite positive impact rupee depreciation and no salary hike in this quarter which is a huge concern.EPS dipped 1.9%QoQ to Rs40.1.
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Huge negative surprise in pricing - Pricing for Infosys dipped 3.7%QoQ which also imposed pressure on EBIT margin. Blended volumes grew 2.7%QoQ. Offshore volumes grew 2.9%QoQ whereas the onsite volumes slumped 2.3%QoQ.
Outlook – Guidance revised further downwards: Infosys has revised USD revenue guidance further downwards to 5% (earlier guidance of 8-10%), which is extremely weak and poses concerns. The EPS guidance for FY13 is Rs166.46.
Questions for management: What is the reason for such a weak guidance? Do you see further pricing pressures in the near term or it seems to have bottomed out? What is the kind of pressures witnessed in the European region and why has it lagged? Has there been any change in the hiring guidance for FY13? Have you taken any new hedges due to the volatile cross currency movement? What is your view on the utilization rates for FY13?
We have a ‘BUY’ recommendation with a price target of Rs 2,725 based on 16.5x FY13E earnings. We will be revisiting our estimates and providing a new target price based on FY14E post con-call.
Warm Regards
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