CMP: Rs 1,721 Target Price: Rs 1,640
Infy reported a superlative performance with Q1FY10 revenues at US$ 1,122 mn, flat QoQ (Emkay est. US$ 1,087 mn).
EBITDA mgns of 34.1%, up 60 bps QoQ with effective cost management.Net profits at Rs 15.3 bn (-5.3%QoQ, +17.3% YoY) beat expectations driven by better than expected operating performance.
Surprised by the lower than expected increase in annual US$ revenue guidance to US$ 4,450-4,520 mn (we expected a revision to US4 4,475 mn-4,615 mn) despite Q1FY10 beat which essentially implies flat revenues QoQ over the next 3 quarters. (what about the '2H volumes pick up' hypothesis being built by the street as well as us? Is Infy being ultra conservative? Or a case of some client specific challenges).
Given Infy's past record of beating expectations, investors would prefer to build in significant revenue/EPS beats in the subsequent quarters.
Valuation remain full at ~17x1 year forward P/E multiple (we already building in ~2.8% CQGR until March'12), leaving little room for absolute price performance. Maintain HOLD with a DCF based March'11 unchanged price target of Rs 1,640.
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