Religare Institutional Research| Infosys (INFO IN, BUY): Healthy Q1 raises probability of guidance beat; BUY

Healthy Q1 raises probability of guidance beat; BUY
INFO reported a strong Q1FY14 with US$ revenue growth of 2.7% QoQ
(RCMLe 1.7%) led by 4% volume growth. While margins were flat despite the
absence of wage hikes this quarter, the company performed well on most
operational metrics. Further, management maintained its guidance, and we
believe a healthy Q1 performance increases the probability of achieving/
beating the top end of the guidance. Overall, while we do not see any
significant upgrades to our EPS estimates, the pick-up in US$ growth could
help drive up valuations. INFO remains our top pick in the Indian IT space.

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 Healthy Q1FY14 – ahead of expectations: Revenues at US$ 1.99bn, up 2.7% QoQ,
were ahead of expectations of US$ 1.97bn. This was driven by strong 4% volume
growth led by recovery in Application Development and Consulting revenues. EBIT
margins were flatQoQ (in line with expectations) despite no wage hikes and a
favourable currency, as S&M expensesincreased. Blended pricing was down 0.7%
QoQ on reported basis largely due to cross-currency headwinds, though constant
currency pricing was flat. PAT at Rs 23.7bn (up 4% YoY) was in linewith expectations.
 FY14 guidance maintained,strong result could mean possible beat: INFO
maintained its FY14 guidance at 6-10% US$ revenue growth in FY14, against
consensus expectations of a cut. The guidance implies a -1 to 1.4% CQGR for the
remaining quarters. While themacro picture remains mixed, we believe the
guidance factors in a very conservative picture and presents a possibility for INFOto
deliver growth ahead of guidance. Further, a strong Q1 reduces the probability of
delivering growth at the low end of the guidance.
 View:Overall, the healthy performance on most operating metrics and healthy
volume growth was a positive surprise. While we do not see any significant EPS
upgrades on the back of this quarter, the pick-up in US$ growth could lead to some
P/E expansion for the company. We have a BUY on the stock (target price Rs 2,800)