Infosys declares Results : Market Thumps Down

                                For 1QFY2012, Infosys reported results that were almost in-line with our as well as street expectations. The company’s performance was modest with 4.0% qoq volume growth. The disappointment came from lower-than-expected 2QFY2012 guidance of 3.5–5.0% qoq growth in USD revenue, which is seasonally the strongest quarter. Also, revenue growth guidance for FY2012 was left unchanged at 18–20% yoy growth. Market expect revenue growth (in USD terms) to record a 21% CAGR over FY2011–13E. We recommend Accumulate on the stock.

Modest results: For 1QFY2012, Infosys reported revenue of US$1,671mn, up 4.3% qoq. In INR terms, revenue came in at `7,485cr, registering 3.2% qoq growth due to INR appreciation of 1.0% qoq against USD. The company’s EBITDA and EBIT margins declined by 298bp and 291bp qoq to 29.1% and 26.1%, respectively, due to wage hikes given in 1QFY2012, effective from April 1, 2011.

Outlook and valuation: Management has indicated 2QFY2012 revenue growth to be 3.5–5.0% qoq only and has kept the annual revenue guidance unchanged at 18–20% yoy. This implies an ask rate of 5.5% CQGR in revenue over 2HFY2012 to meet the upper end of the guidance. Also, in the midst of looming macro concerns and subdued ramp-ups in discretionary spending, the outperformance of 3–5% on management’s upper end of the guidance looks limited as it implies an ask rate of 6.5–7.5% CQGR in revenue over 2HFY2012. Being cognizant of the deteriorating macros, client-specific issues (BT account still being anaemic) and muted earnings guidance for FY2012, we have cut our EPS estimates for FY2012 and FY2013 to `137 and `160, respectively. Thus, we revise our one-year forward target PEx downwards to 20x from 21x and value the stock at a target price of `3,200 (earlier `3,424) and recommend Accumulate on the stock.

Security Name Face Value ISIN Code 52 week high price 52 week low price Infosys Limited  5.00 INE009A01021 3499.00 2652.50

                                                

Price Information Open 2850.00 High 2850.00 Low 2746.80 Last Price 2786.10 Prev. Close 2921.15 Close Price 2791.55 Change -135.05 % Change -4.62 VWAP 2775.66 Total traded quantity 37,06,582 Turnover in Lakhs 102882.11