Nice and steady… • Infosys :: ICICI Securities, link

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Nice and steady…
• Infosys reported robust Q3FY15 earnings led by growth in the US,
India, BFSI, lifesciences, application maintenance and IMS
• Constant currency (CC) revenues grew 2.6% while $ revenues grew
0.8% QoQ to $2,218 million, ($2,223 million, 1% growth estimate).
Consolidated IT services grew 0.7% QoQ, led by volumes (4.2%)
• EBIT margins improved 61 bps QoQ to 26.7% (26.5% estimate) while
net income came at | 3,250 crore vs. | 3,232 crore estimate led by
margin beat
• Though Infosys maintained its FY15E US$ revenue growth guidance
of 7-9% YoY, the guidance assumes the September 30 period ending
exchange rates
Conveniently sugar coats FY15E guidance…
From an FY15E perspective, though Infosys maintained its 7-9% YoY
growth guidance, the guidance assumes September 30, 2014 exchange
rates. Note, the period ending rates for Q3FY15 quarter for euro, pound
and AU$ stood at 1.21, 1.56, 0.82 vs. the dollar, a depreciation of 4.2%,
3.9% and 6.6% relative to September 30, 2014 assumption. Adjusting the
depreciation assuming Q2FY15 currency contribution could lead to ~100-
120 bps of reduction in FY15E guidance. Consequently, we adjust our
FY15E $ growth to 7% YoY (vs. 9% earlier) for reasons mentioned and
tough ask of achieving ~6% QoQ growth in Q4 to attain the top-end of
the adjusted (6-8%) guided range.
Margins continue to beat conservative guidance…
At 26.7%, Q3FY15 EBIT margins were ahead of 26.5% led by rupee (70
bps), offshoring (71.5% vs. 71.3% in Q2) and utilisation (82.7% extrainees,
11 year high). Infosys highlighted that margins may range in the
narrow band of 25% +/- 1% as it would reinvest efficiency gains into
rebuilding sales efforts and building capabilities for newer technologies.
Though LTM attrition increased 30 bps QoQ to 20.4%, absolute attrition
has declined to 8927 heads vs. 10128, 10627 in Q2 and Q1, respectively.
The management highlighted that employee engagement initiatives
including promotions, 100% variable payout could help moderate
attrition. We raise our margin assumption and expect FY15E margins to
improve 200 bps YoY to 26% vs. 25.5% earlier.
Focusing and building scale in select services
Infosys emphasised on the massive embrace of design thinking – new – in
renewing existing offerings such as consulting services, product
engineering and Finacle. The company noted that next generation PLM,
integration of physical with digital, is creating opportunities with Infosys
starting three to six such engagements in the last four months. Infy is also
busy revitalising the existing Finacle installed base under its new head
Michael Reh by focussing on digital, mobility and analytics services.
Improvement in growth trajectory to continue in FY16E
We expect Infosys to report revenue, EPS CAGR of 8%, 14%,
respectively, in FY14-16E (with average 26.1% EBIT margins in FY15-16E),
slower than 18.2%, 12.2% reported in FY09-14 along with average 28.1%
margins. Healthy volume growth, client additions and improving
operating metric could aid growth momentum. We continue to value Infy
at 20x its FY16E EPS (13% premium to its FY09-14 one-year forward PE
average of 17.7x) and maintain our | 2,400 target price and BUY rating.

LINK
http://content.icicidirect.com/mailimages/IDirect_Infosys_Q3FY15.pdf