PL INDIA: Infosys - First Cut-Another miss, expects further cut in estimates

PL INDIA 

Infosys

Q1FY13 Result Update - First Cut-Another miss, expects further cut in estimates

Infosys reported Q1FY12 results below of our/consensus expectation in a challenging quarter as indicated by the management in Q4FY12 conference call. Moreover, the company’s guidance for FY13 US$ revenue is revised below our/consensus estimates. We see stock price to go down by 8-10% due to weaker result. The result disappointed on almost all the counts.

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n  Results below our/consensus expectation: Infosys’ revenue grew by 8.6% QoQ to Rs96.16bn for Q1FY13 (Guid.: Rs90.56bn, PLe: Rs96.11bn, Cons: Rs96.08bn) in Indian rupee term, whereas revenue in USD term de-grew by 1.1% to US$1752m (@cc $1763m) (Guid.: $1,780m, PLe: $1,780m). The company reported an operating margin erosion of 190bps QoQ to 28% (PLe: 31.4%, Cons: 30.4%) despite currency tailwind of 9.8% QoQ. The company reported EPS of Rs40 (Guid: Rs36.89, PLe: Rs42.06, Cons: Rs42.43), a de-growth of 1.2% QoQ.

n  Geography and segments – NA and Manufacturing stable, Europe and BFSI disappoints: Revenue for NA and Europe grew by 1.6% (@cc 1.7%) and -8.4% (@cc -7.2%) QoQ, respectively, whereas in terms of vertical, Maunfacturing and BFSI grew by 2.2% (@cc 3.1%) and -1.1% (@cc -0.4%) QoQ, respectively. Except Testing Services (5.3% QoQ) and IMS (5.3% QoQ), all service line declined.

n  Pricing – pricing declined: The pricing declined by 3.7% QoQ(Onsite: -3.4%, Offshore: -3.8%). It added 51 new clients. Utilization excluding trainees further fell by 140bp to 71.6% due to weaker than expected growth.

n  Outlook – Lower than our expectation of US$ revenue guidance, No guidance for Q2FY13: Infosys has revised their US$ revenue guidance downward by 3.7% due to cross currency movement and weaker demand. The new guidance in USD revenue growth is 5% for FY13 (PLe: 7-9%, Cons: 6-8%). Its rupee EPS guidance revised upward by 4% YoY to Rs166.5 (PLe: Rs164-168). The company has stopped giving quarterly guidance.

n  Valuations and Recommendation – See pressure on stock in near terms: We see weakness in the stock price due to weak guidance  in near term. We may revisit our estimates post conference call.