Infosys Technologies- 1QFY12 - An unexciting quarter once again from the industry bellweather::JPMorgan

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Infosys Technologies Neutral
INFY.BO, INFO IN
1QFY12 - An unexciting quarter once again from the
industry bellweather- retain Neutral


Infosys’ 1QFY12 results came in the background of expectations that this quarter
could be the quarter of the beginning of a comeback for the bellwether after the
recent restructuring. The quarter’s results belied such expectations. The quarter
came in below ours and consensus expectations. Infosys has also not raised its
USD revenue growth guidance for FY12 and has assumed a conservative tone
with regard to its 2Q revenue guidance. This puts the onus on 2HFY12 to deliver
on revenue growth guidance – never easy in the backdrop of a tough macroenvironment.
Downward EPS revisions for Infosys in the street are likely. We
maintain our Neutral rating on Infosys and continue to prefer TCS (OW) in
the sector.
 Infosys reported 1QFY12 revenues of US$1,671 mn, implying sequential
growth of 4.3%, below ours and consensus estimate of 5.4% and 4.9%,
respectively. Constant currency revenue growth of 3.1% was within company
guidance of 2.6%-3.6%. Overall volume growth of 4% Q/Q came in below
expectations but better onsite volume growth of 6.8%, might indicate initiation
of new projects. Offshore volumes grew 2.7%.
 Operating (EBIT) margins of 26.0% declined 300 bps from last quarter, and
remained meaningfully below ours and consensus expectation of about 27.5%.
Utilization rate (ex trainees) was flat at 73.4%. We note that other income
makes up 18.5% of earnings before tax (EBT), which we believe should not
be given the same multiple as the core EBT.
 1QFY12 EPS of Rs.30.1 was meaningfully below ours and consensus
expectation of Rs.32.0 and Rs.30.5, respectively.
 Pricing has not fared well. Constant currency (CC) billing rates (pricing)
remained flat, primarily because of mix shift to onshore, while offshore and
onshore billing rates decreased 1.6% and 0.3% respectively. Notably, constant
currency (CC) revenues from Europe declined 2.6% (which we believe is
concerning), while North America revenues grew 5.1%. Rest of the world
revenues (CC) grew 2.4%.
 Attrition rises again. Quarterly annualized attrition increased meaningfully to
22%, from 18% last quarter, a primary reason for which might be restructuring.
 Infosys maintained FY12 US$ revenue growth guidance of 18%-20%. The
upper end of the guidance implies 5.5% CQGR for the remaining three quarters.
The company increased FY12 EPS guidance from Rs.126.05-128.21 to
Rs.128.20-130.08, primarily to factor in higher than guided EPS for Q1. Q2 US$
revenue growth guidance of $1,730-$1,755 implies Q/Q revenue growth of
3.5%-5.0%, which we believe is light.
 On the conference call, we will be looking for commentary on demand
environment in general and Europe in particular, which was weak in Q1.
We expect management to remain conservative/cautious. We will seek
incremental color on pricing, which was primarily flat for the quarter.
 TCS continue to be our top pick - we stay Neutral on Infosys.