Infosys - First Cut - Managing Expectations - Prabhudas Lilladher

Infosys reported Q3FY12 results touch lower than our/consensus expectation in a challenging quarterquarter. However, the company lowererd guidance for FY12 US$ revenue below our/consensus estimates. We see result as weaker than consensus expectation. We see near term pressure on the stock price due to weaker result.

- Results ahead of our/consensus expectation: Infosys' revenue grew by 14.8% QoQ to Rs92.98bn for Q3FY12 (Guid.: Rs89.2bn, PLe: Rs92.1bn, Cons: Rs91.4bn) in Indian rupee term, whereas revenue in USD term grew by 3.4% to US$1,806m (Guid.: $1,821m, PLe: $1,812m). The company reported an operating margin expansion of 301bps QoQ to 31.2% (PLe: 30.9%, Cons: 30.4%) due to currency tailwind of 11% QoQ. The company reported EPS of Rs41.51 (Guid: Rs38.86, PLe: Rs39.37, Cons: Rs39.62), growth of RR% QoQ.

- Geography and segments – Europe and Manufacturing shines, NA and Retail disappoints: Revenue for NA and Europe grew by 0.9% and 14% QoQ, respectively, whereas in terms of vertical, Maunfacturing and Retails grew by 4.5% and 0.8% QoQ, respectively. IMS and ADM grew by 8.8% and 4.4% QoQ.

- Pricing – pricing muted in‐line with expectation: The pricing declined marginally by 0.1% QoQ(Onsite: 1.4%, Offshore: -0.6%). It added 49 new clients.

Outlook – downward revision in US$ revenue, expect flat Q4FY12: Infosys has revised its USD revenue growth guidance downward for FY12 to 16.4% YoY growth, (PLe: 17-18%). It has revised its rupee EPS guidance by 2.1% to Rs147.13, a growth of 23.1% YoY. For Q4FY12, Infosys guided for 0.1% QoQ revenue growth to US$1808mn and EPS of Rs42.12.

Valuations and Recommendation – See pressure on stock in near terms: We see weakness in the stock price due to weak guidance in near term. We may revisit our estimates post conference call.

Source : Equity Bulls

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