Tuesday, January 12, 2010

Infosys Q3FY10 Result Update ; Quite a show; Time to cut underperformance V/s peers ; ACCUMULATE ; Target: Rs 3,100

Infosys Technologies

 

Quite a show; Time to cut underperformance V/s peers


ACCUMULATE

 

CMP: Rs 2,581                          Target Price: Rs 3,100


Infosys reports US$ revenues at US$ 1,232 mn (+6.8% QoQ), way ahead of Emkay expectations of US$ 1,211 mn (note that we were the highest on the street at US$ 1,211 mn).

Operating margins expanded by ~90 bps sequentially to 35.5%, credible in our view despite the negative impact of INR appreciation, wage increments and fresher hiring. (note that we were building in ~90 bps decline as compared to consensus at ~150 bps decline).

Net profits at Rs 15.8 bn (+2.8% QoQ, -3.5% YoY) beat estimates driven by higher revenue/margin performance.

Upping FY11/FY12E EPS by ~6.3%/8% respectively to Rs 121.2/Rs 142.6 now driven by increase in revenue expectations and a reset to a higher US$/INR exchange rate to Rs 45/$ (V/s Rs 47/46 for FY11/FY12 earlier)

Co's March'10 revenue guidance of US$ 1,240-1,250 mn(+0.6%-1.5%QoQ) is a little conservative in our view ( given the usual Q4 performance , refer table ' Guidance : conservative yet again 'below)

After playing a large part of the recovery in IT spend through TCS and HCL Tech (both rated ACCUMULATE until now) and having held a HOLD/NEUTRAL rating on Infosys all this while, we believe that going forward Infosys will reduce the underperformance V/s peers (30%+ V/s other Tier 1 players) and thus upgrade stock to ACCUMULATE with a revised target price of 3,100 (refer Table 'Infosys: relative underperformer V/s peers until now')

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