Infosys - Q3 FY12 Results Update - PINC Research

Q3 performance has been above street's expectations. Pricing is maintained which is a positive under the current environment. Margins have been aided by the weaker rupee. The guidance for Q4 dollar revenue is weak which will play down the good growth in this quarter. For FY12, the INR EPS guidance has been increased from Rs143-145 to Rs147.13 but the guidance is based on INR/USD of 52 and there is EPS outperformance in Q3 as well. We believe the fiscal discipline will outweigh the dip in volume growth due to a weak macro environment. Also, we expect good profitability in FY13 even with moderate volume growth due to weak rupee.

Q3FY12 financials exceed expectation - Revenue grew 3.4%QoQ to USD1806mn. Rupee revenue was Rs92,980mn (14.8%QoQ). For consolidated IT, volume growth was 3.1%QoQ and pricing was flattish with 0.1%QoQ decline. EBIT margin expanded 301bpsQoQ to 31.2%, in-line expectation. Net profit was Rs23,720mn, better than expectation. EPS grew 24.4%QoQ to Rs41.5 (PINCe Rs41.4).

Europe shines in Q3 but outlook weak- Europe grew 14%QoQ, US was flattish with 0.9%QoQ growth and Rest of the world was flattish.

Emerging verticals grew sharply; BFSI had steady growth - BFSI grew 3.4%QoQ, Manufacturing grew 4.5%QoQ, Transport & Logistics grew 21.7%QoQ, and Energy & Utilities grew 8.9% QoQ.

Top clients disappoint but new client addition robust - Top client declines 7.8%QoQ, top 5 clients decline 2.5%QoQ, and top 10 clients grew marginally 0.6% QoQ. Non top 10 clients grew 4.4%QoQ. Added 49 new clients, total clients increased by 18 to 665.

Attrition stable but utilisation down- Employee gross addition was 9,655 and net addition was 3,266. Total gross addition in FY12 to date is ~35,000. Attrition rate is reduced 20bpsQoQ to 15.4%; utilisation incl. trainees dipped 39bpsQoQ to 69.9%.

Outlook and recommendation - Q4FY12 quarter dollar revenue outlook is weak (0-0.2%QoQ to USD1,806-1,810mn) and the focus will shift to growth prospects in FY13 based on expectations of clients' budgets for the next year. However, weak rupee and moderate growth in the range of 11-13%YoY in FY13 is likely to reflect EPS in the range of Rs168-170. At the CMP, the stock is trading at PER multiple of 16.7x FY13E EPS. Maintain 'Accumulate' rating on the stock.

Source : Equity Bulls

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