Hold Infosys; target of Rs 2519: R K Global

R K Global has recommended hold rating on Infosys with a target of Rs 2519, in its July 16, 2012 research report.

“Infosys delivered a disappointed Q1FY’13 results with a ~9% sequential growth in stand. Revenue for the period stood at to Rs89,090 mn for the quarter ended June’12, while its YoY revenue grew by ~29% (de-grew from our estimates by ~7%). Dollar revenues declined by ~1.1% QoQ to USD1,752 mn. However, the key disappointment was that Infosys cut its FY’13E revenue due to slow decision making in spends. What was felt significant for the Q1FY’13 was the lack of management confidence in sticking to its age-old practice of giving a quarterly revenue expectation, citing an “enormous amount of volatility”

“Rupee revenues were led by North America region, and vertical wise FSI, RCL (Retail, Logistics, CPG & Lifesciences) and Manufacturing led the growth. Business operations line which includes ADM, Testing and Consulting led in the services space although niche vertical like Product, platform and solutions grew modestly. Revenues were impacted by 140bps decline in Utilizations excluding trainees to ~71.6% while it remained flat at ~67.2% including trainees. There was a net addition of 1157 against 4906 employees in the sequential quarter and gross addition of 9236 of which 5233 were lateral recruitment against 10676 employees, of which 4727 were lateral recruitment. For FY’13E, in dollar terms, dollar guidance was revised downwards to USD7.3 bn, ~5% growth. In rupee terms, however, guidance was revised upwards to Rs4,03,640 mn, a ~19.65% growth. EPS guidance is Rs166.5, a growth of ~14.3%. The guidance is based on rate of Rs55/US$. OPM fell by ~200bps to ~36% on the back of increase in cost of sales thereby leading the operating profit growth of just ~3% to Rs27,750 mn. Net profit de-grew ~1% to Rs23,710 mn on a sequential basis as other income declined due to rupee depreciation. The results were above the guidance given for Q1FY’13 but below market expectations.”

“Rupee revenues were led by North America region, and vertical wise FSI, RCL (Retail, Logistics, CPG & Lifesciences) and Manufacturing led the growth. Business operations line which includes ADM, Testing and Consulting led in the services space although niche vertical like Product, platform and solutions grew modestly. Revenues were impacted by 140bps decline in Utilizations excluding trainees to ~71.6% while it remained flat at ~67.2% including trainees. There was a net addition of 1157 against 4906 employees in the sequential quarter and gross addition of 9236 of which 5233 were lateral recruitment against 10676 employees, of which 4727 were lateral recruitment. For FY’13E, in dollar terms, dollar guidance was revised downwards to USD7.3 bn, ~5% growth.”

“In rupee terms, however, guidance was revised upwards to Rs4,03,640 mn, a ~19.65% growth. EPS guidance is Rs166.5, a growth of ~14.3%. The guidance is based on rate of Rs55/US$.  OPM fell by ~200bps to ~36% on the back of increase in cost of sales thereby leading the operating profit growth of just ~3% to Rs27,750 mn. Net profit de-grew ~1% to Rs23,710 mn on a sequential basis as other income declined due to rupee depreciation. The results were above the guidance given for Q1FY’13 but below market expectations,” says R K Global research report.

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