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Infosys’ 2QFY12 results per se did not surprise us positively but they were
greeted with much enthusiasm by the Street, which to us seems overdone.
Revenue performance was below our expectations. However, the Street points
to two positive factors, both of which are open to argument, in our view. They
are: (a) FY13 revenue growth guidance cut by 1% is lower relative to
our/consensus expectations of 2%, revised USD revenue growth guidance of
17.1-19.1% (vs. the earlier 18-20%), this 1% downward adjustment is made for
the reasons of stronger USD (cross-currency impact) and (b) the FY12 (INR)
EPS guidance being marked up materially by ~12% (from Rs 128-130 to Rs
143-145).
FY13 revenue growth guidance band is now 17.1-19.1% but Infosys may
not hit the upper end, unlike in the past. An implicit assumption investors
commonly make is that Infosys should be tracking/exceeding the upper end of
the guidance. This need not be the case going forward, given the track record of
performance versus guidance over the recent past.
The FY12 (INR) EPS guidance is now significantly up (~12%) thanks to
the weaker INR. Infosys has modeled in the current exchange rate of ~49 for
the INR-USD equation for 2HFY12. We note that this could reverse in the
event the INR reverses its course of weakness vs. the USD. This upgrade is not
due to operational factors that warrant an equivalent P/E as the core business.
Interestingly, the revenue guidance band for 3QFY12 (Oct–Dec 11) is quite
wide, which is not normal for a current quarter guidance. Uncertainty on
deals not ramping up as expected could pose a risk to Infosys
meeting/exceeding the upper end of 3FY12 revenue growth guidance (5.4%).
Some positives are seen. Hiring has been robust with gross additions of 15,352
(vs. indication of 12,000) though we need to see if this results in Infosys
exceeding its hiring target of 45,000. Forty-five new clients were added – the
highest in six quarters.
Investment view. Retain Neutral with Mar-12 PT of Rs2,800. The adjustment
we have made to our FY12E/13E EPS stands revised upwards for the weak INR
(versus the USD). Other assumptions remain the same. We note that 1%
appreciation/depreciation of the INR versus the USD affects EPS
negatively/positively by ~1.7%. We continue to believe that the current rally
in Infosys is also due to a swathe of investors keen to reverse their
underweight stance on the stock and presents an opportunity to book
profits.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Infosys’ 2QFY12 results per se did not surprise us positively but they were
greeted with much enthusiasm by the Street, which to us seems overdone.
Revenue performance was below our expectations. However, the Street points
to two positive factors, both of which are open to argument, in our view. They
are: (a) FY13 revenue growth guidance cut by 1% is lower relative to
our/consensus expectations of 2%, revised USD revenue growth guidance of
17.1-19.1% (vs. the earlier 18-20%), this 1% downward adjustment is made for
the reasons of stronger USD (cross-currency impact) and (b) the FY12 (INR)
EPS guidance being marked up materially by ~12% (from Rs 128-130 to Rs
143-145).
FY13 revenue growth guidance band is now 17.1-19.1% but Infosys may
not hit the upper end, unlike in the past. An implicit assumption investors
commonly make is that Infosys should be tracking/exceeding the upper end of
the guidance. This need not be the case going forward, given the track record of
performance versus guidance over the recent past.
The FY12 (INR) EPS guidance is now significantly up (~12%) thanks to
the weaker INR. Infosys has modeled in the current exchange rate of ~49 for
the INR-USD equation for 2HFY12. We note that this could reverse in the
event the INR reverses its course of weakness vs. the USD. This upgrade is not
due to operational factors that warrant an equivalent P/E as the core business.
Interestingly, the revenue guidance band for 3QFY12 (Oct–Dec 11) is quite
wide, which is not normal for a current quarter guidance. Uncertainty on
deals not ramping up as expected could pose a risk to Infosys
meeting/exceeding the upper end of 3FY12 revenue growth guidance (5.4%).
Some positives are seen. Hiring has been robust with gross additions of 15,352
(vs. indication of 12,000) though we need to see if this results in Infosys
exceeding its hiring target of 45,000. Forty-five new clients were added – the
highest in six quarters.
Investment view. Retain Neutral with Mar-12 PT of Rs2,800. The adjustment
we have made to our FY12E/13E EPS stands revised upwards for the weak INR
(versus the USD). Other assumptions remain the same. We note that 1%
appreciation/depreciation of the INR versus the USD affects EPS
negatively/positively by ~1.7%. We continue to believe that the current rally
in Infosys is also due to a swathe of investors keen to reverse their
underweight stance on the stock and presents an opportunity to book
profits.
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