Infosys remains the top pick, Tgt Rs3,200

Infosys Technologies

Reco: ACCUMULATE

CMP: Rs2,781

Target Price: Rs3,200

On song , Retain ACCUMULATE

Infy reports revenues at US$ 1,296 mn (+5.2% QoQ) marginally ahead of expectation (US$ 1,292 mn). Margins declined by ~150 bps QoQ to 34%. Profits at Rs 16.2 bn met estimates driven by lower depreciation. Operating metrics remained rock solid with vols growing at ~4.6% QoQ. European revenues grew by ~8% sequentially despite cross currency hits. BFSI/ Manufacturing continued to record stellar growth at ~5.8%/10% QoQ.

FY11 revenue guidance at US$ 5.57-5.67 bn (+16%-18% YoY) should provide strong base to both our/street revenue growth expectations of 20%+ revenue growth heading into FY11. June'10 guidance of US$ 1,340-1,350 mn(+2.6%-3.4% QoQ) implies a 3.1-3.8% CQGR over Q2FY11-Q4FY11 for company to meet it's guidance.

Despite headwinds from recent currency appreciation and wage increments (believe Infosys best placed amongst other Tier 1 peers to handle the same) and co's INR EPS guidance at ~Rs 107-111, we remain confident, albeit raise FY11/FY12E earnings by ~2.5/2.2% to Rs 124.2/Rs 146 respectively (US$/INR assumptions unchanged at Rs 45/$)

Infy remains the top pick. Retain ACCUMULATE with a revised target price of Rs 3,200, based on 22x 1 year rolling forward P/E multiple (V/s Rs 3,100 earlier). Any sharp INR appreciation remains the key risk to our call.

 

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