Maintain Buy on Infosys - Karvy

Infosys Result Review – Already factors in slow H1CY12; Maintain "BUY"

(INFO IN; Mkt Cap: US$28751mn; BUY, CMP: Rs 2,588; TP: Rs 3,100; 20% Upside)

In Q3FY12, Infosys' revenues grew 14.8% QoQ in INR term and 3.4% QoQ in USD term (4.4% in constant currency term), which was at the bottom end of guidance of 3.4%-5.4% for the quarter. Volume growth of 3% QoQ was below expectations, while the blended pricing rose 0.8% QoQ (in constant currency term). Margins improved 265bps sequentially on account of depreciating INR. We maintain our "BUY" recommendation on the stock with reduced target price of Rs. 3,100 per share from Rs. 3,300 earlier.

Quarterly Highlights: 1) Pricing was up 2.3% QoQ in constant currency for onsite projects. 2) Attrition was at 15.4% and net addition was low at 3,266 (8,262 in Q2), but lateral addition was higher at 3,863 (2,318 in Q2). 3) Utilization (including trainees) was lower at 67.6% (68.5% in Q2). 4) Performance across Geographies: Europe saw strong growth of 16.8% in constant currency; Americas up only 1.1%. 5) Top clients' contribution (4.1% of revenue) de-grew 7.7%. 6) Performance across Verticals: Manufacturing grew 5.7% in constant currency, RCL and BFSI grew 5.3% and 4%, respectively. 7) Cash & Equivalents stood at US$3.68 bn.

USD Revenue – Q4FY12 Guidance Disappoints; FY12 Guidance Slashed Infosys guided to a flat revenue growth for Q4FY12, which is disappointing, lowering FY12 US$ revenue guidance to 16.4% (vs our expectation of 17-17.5%). However, the EPS guidance was revised up to Rs. 147 (from Rs. 143-145 earlier). Infosys is guiding to USD revenue growth of 0%-0.2% for Q4FY12, which again was below expectation. Infosys sees CY12 budget from flattish to slightly negative. Its Management indicated that the clients, despite having budgets, are deferring the spending due to macro-economic uncertainty.

Outlook & Valuation - We raise our FY12/13/14E earnings estimates by 3.6%/3.7%/3.3%, respectively, to factor in lower currency re-sets, which is partly being offset by lower expected revenue growth trajectory. We reduce our target to Rs. 3,100, implying 18.5x Mar'13 EPS (20.5x earlier) to account for higher macro environment concerns. Risks Higher exposure to consulting/package implementation compared to peers may place it at relatively higher risk. Lower-than-expected demand ramp up in key areas like the US.

Source : Equity Bulls

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