View from Research Desk on April 16, 2009
Infosys Technologies Q4FY09 Results
Not out of the woods yet, maintain HOLD with unchanged price target of Rs 1330. Expect near term pressure on the stock.
Infy misses lower end of quarterly revenue guidance for a 2nd quarter in a row
Infosys Technologies reported US$ revenues of US$ 1121 mn (-4.3% QoQ) missing the lower end of US$ revenue guidance for a 2nd consecutive quarter in a row, a clear indication of non renewals on discretionary budgets and unplanned cuts in team sizes. Operating margins declined by ~150 bps sequentially, higher than our expectations of ~110 bps decline. Net profits at Rs 16.1 bn (-1.7% QoQ, +31.4% YoY) came in marginally below estimates. Co wide YoY volume growth at 9.2% (volumes declined sequentially by ~1%) is the lowest ever and marks the 1st single digit YoY volume increase. Blended pricing in IT services was down ~3% QoQ. Revenues from top client continued to decline with revenues declining by ~12% QoQ in US$ terms (constant currency decline of ~ 4%QoQ).
Pricing assumption for FY10 Guidance at Q4FY09 levels slightly uncomforting as we see more downside risks to pricing.
We are surprised and unenthused by the co's assumptions on the pricing front as co itself indicated that IT spends had been finalized only at ~69% of the clients. (and are down by ~10% at the least) We see more downside risks to the co's pricing assumptions. Infy's guidance implies a 1.7%-3% CQGR for company to meet the lower and the upper end of FY10 revenue guidance
Revise FY10E EPS marginally
We cut our FY10 US$ revenue estimates to US$ 4507 mn (-3.4% YoY decline, a volume growth of 6.1% YoY and a further pricing decline of 4% over March'09 levels) and rebase our estimates at US$/INR of Rs 49 for FY10 and Rs 48 for FY11 respectively. We expect Infosys to report EPS of Rs 98.9 and Rs 106.1 for FY10 and FY11 (V/s Rs 99.3 and Rs 108 earlier)
Maintain HOLD with unchanged price target of Rs 1330. Expect near term pressure on the stock.
Rallis India Ltd CMP Rs492 (TP: UR)
Rallis has come out with better than expected results with topline growth of 26.1% and PAT growth of 59.5%. The EPS for Q4FY09 stood at Rs8.93. Our full year EPS (including the exceptional items of Rs129.9 as normal expenses) is Rs54.94.
We are organizing a fund manger's meet at 10 am today. The key points to consider will be:
a) The company's export strategy
b) Dahej expansion plan and its implementation schedule
c) Financing plans for Dahej and repayment of Rs880m of preference capital which is due in FY10.
d) Chances of improvement in operational efficiency
Rsm
| YE MARCH | Q4FY08 | Q4FY09 | % YoY |
| Net sales | 1443 | 1820 | 26.1 |
| Total Exp | 1334.00 | 1629.00 | 22.1 |
| EBITDA | 109.00 | 191.00 | 75.2 |
| EBITDA % | 4.9 | 10.5 | 115.4 |
| Dep | 38.7 | 52 | 34.4 |
| Int | 6.6 | 6 | -9.1 |
| OI | 6 | 14 | 133.3 |
| PBT | 69.70 | 147.00 | 110.9 |
| Tax | -9.3 | 21 | -325.8 |
| APAT | 79.00 | 126.00 | 59.5 |
| AEPS (Rs) | 5.01 | 8.93 | 78.33 |
Global Cues: The US mkts yesterday started on a jittery note after the bad data on consumer sales & poor earnings report from Intel. However perhaps the mkts all over the world are not in a mood to give an ear to nay bad news so the Dow ignored bad data & continued its upmove. The Dow ended the day with gains of 109 points. However the broader S&P did not show that euphoria & closed the day with gains of 1% while the Intel performance weighed heavy on NASDAQ which closed on flat note. Meanwhile UBS has announced 8700 job cuts after an unexpected qtrly loss of $1.75 bn & American Airlines parent company AMR reported a qtrly loss of $ 375 m.
Asian mkts are trading mix though all in positive territory except China though with different percentage gains. SGX is trading with gains of 25 points
Our Markets: Our mkts yesterday started on a weak note responding to Infosys results but after initial hour the mkts just turned around & ignoring any bad indication from Infy results or global cues gained momentum. Realty lead the rally supported by almost all the sectors. Many mid cap stocks rallied substantially. Though for many of them we can not fathom any reason why they have moved in that fashion.
For today we would expect mkt to continue there momentum & start the day with positive bias. However we believe there is irrational exuberance in he mkts across the globe including India where mkts are just ignoring any bad /negative news. We become cautious when many mid/small cap stocks start gain 30-50% in a day without any explainable or visible reasons. Probably that is the time to book profits & exit the mkts. We would advice not to enter this rally at this time even if it is very tempting to enter & make a quick buck. We believe the upside from here is limited but the downside risk is quite high. Those who have been lucky to get into this rally at earlier stage they should book profits or use very strict stop loss while unfortunately those who could not enter at the right time should stay away & wait for the opportunity.
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