Ventura's research report
"Infosys, for the third quarter of FY14, Infosys surprised the street as it posted higher than expected sales figures. INR revenues for the quarter stood at Rs 13,026 crore, registering a QoQ growth of 0.5 percent and a YoY growth of 25 percent. The net profits increased by 19.4 percent to Rs 2,875 crore in Q3FY14 against Rs 2,407 crore in Q2FY14 on a sequential basis. On a yearly basis, the net profit notched up a growth of 21.4 percent. In dollar terms, Infosys posted revenue growth of a mere 1.7 percent QoQ."
"Volume growth remained muted at 0.7 percent QoQ, owing to seasonality (onsite down 3.4 percent, offshore up 2.6 percent). Blended pricing improved by 0.66 percent QoQ (onsite up 2.2 percent, offshore up 2.1 percent). Despite strong improvement in pricing in both onsite and offshore, blended pricing improvement was softer owing to effort mix shift towards offshore. Its operating income grew at 14.9 percent QoQ to Rs 3,259 crore backed by the 17.1 percent decrease in its operating expenses. The drop in its operating expenses was mainly due to a 14.9 percent decrease in selling & marketing expenses and 18.7 percent lower administrative expenses on a quarterly basis."
"Weak growth in the US (60 percent of revenue, down 0.8 percent QoQ) was a key headwind to revenue. We believe that part of the weak growth in the US was due to the seasonal layoffs. Consequently, sectors most exposed to seasonal layoffs (such as manufacturing) witnessed the worst revenue growth. The exit headcount came in at 158,404, which represent a net decline of 1,823 employees. The company has registered a net decline in headcount after a period of 18 quarters. Attrition (LTM) remained elevated (18.1 percent, up 80bps QoQ). On the deal front, the company reported five large deal-signings, totaling to USD 500mn; while three were signed in Europe, two were US deals. During the past three quarters, it has signed deals in excess of USD1.5bn."
"The company has increased its USD revenue growth guidance to 11.5-12 percent YoY for FY14 vs 9-10 percent earlier. However, this guidance implies a revenue decline by 0.3 percent QoQ at the lower end and a growth of 1.3 percent QoQ at the upper end. At the CMP of Rs 3,728, Infosys Ltd. is trading at 19.9x and 16.8x its estimated earnings for FY14E and FY15E and we recommend a BUY at current levels considering its cheap valuations compared to its peers.
Tata Consultancy Services (TCS)
"TCS, during the quarter, a gross addition of ~15,000 took the total headcount to ~2,90,000. TCS has increased its FY14 hiring target by 5,000 to 55,000, which implies a gross addition of ~13,000 during Q4. The campus hiring target of 25k for FY2015 remained unchanged. TCS maintains the best-inclass retention rate with a 10.9 percent attrition rate. Utilisation of ex-trainees hit a life time high of 84.3 percent in Q3FY14."
"The management is quite positive about FY15 and has commented that "Simplification" and "Digital" are two key themes, which will drive better growth in FY15 over FY14. It remains quite optimistic on the digital space and believes that it can provide a USDbn opportunity over the next few years. In fact, engagement sizes in digital have increased from a few thousand USD in the past to a few million USD. The management expects softness in domestic business till September 2014 owing to upcoming elections."
"At the CMP of Rs 2,213, TCS Ltd. is trading at 23.1x and 19.4x its estimated earnings for FY14E and FY15E and we recommend a HOLD at current levels, considering its decent performance in QoQ terms but a relatively high valuation," says Ventura Securities research.
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