Analysts cut Infosys FY13 USD revenue growth; stay 'buy'

Moneycontrol Bureau

The Infosys shock of a flat fourth quarter guidance and a cut in current fiscal US dollar revenue growth on Thursday has prompted many analysts to cut their fiscal 2013 revenue forecasts on the software services provider. However, barring a few, most have retained a "buy" or similar rating on the stock, some citing attractive valuations, others feeling its rivals' results could be worse.

"We continue to believe that Infosys' result would be the strongest in third quarter among tier 1 IT [companies] on parameters such as revenue growth, margin increase and profit growth. This is partly because of lower hedging and lower cross currency impacts. We continue to prefer Infosys over TCS and Wipro," said Nomura analysts Ashwin Mehta and Pinku Pappan.

Infosys' third quarter consolidated net profit rose better-than-expected 33.3% year-on-year to Rs 2,372 crore. Revenue was up 31% year-on-year to Rs 9,298 crore.

However, these positive numbers were offset by its cut in full year US dollar revenue growth guidance to 16.4% year-on-year, from 17.1-19.1% growth it had guided earlier.  Slower growth in developed markets coupled with the euro zone crisis could hit IT industry growth its CEO, MD SD Shibulal said.

Infosys expects fourth quarter revenue in USD 1.806-1.810 billion range, versus USD 1.806 billion in third quarter, which disappointed the street the most. Some like JP Morgan even viewed this as a sequential decline, considering that there will be an additional day in February, which should have added 1.5-1.6% to revenue growth.

Infosys' guidance shows clients are cutting back or at least postponing discretionary spending, creating an uncertain environment amid overall macro-economic concerns.

"We believe that the guidance is disappointing considering that the downgrade has come with just one quarter to go. This indicates bleakish near-term visibility driven by low client confidence," said Vihang Naik and Varun Vijayan of MF Global Sify Securities.

"While December quarter results were largely in line with consensus, a flat revenue guidance for March quarter, inspires little confidence on a 14-15% year-on-year revenue growth for fiscal 2013," said Manik Taneja and Priya Gajwani of Emkay Global Financial Services.

"The only change in demand environment commentary from Infosys management on third quarter earnings call versus second quarter's was a 'marginal' deterioration in decision-making pace among clients. Here