12 July 2013
1QFY14 Results Update | Sector:
Technology
Infosys
BSE Sensex
S&P CNX
19,958
6,009
Bloomberg
INFO IN
Equity Shares (m)
571.4
M.Cap. (INR b)/(USD b) 1,602/26.8
52-Week Range (INR) 3,010/2,102
1,6,12 Rel. Perf. (%)
11/2/8
CMP: INR2,803
TP: INR3,050
Buy
Financials & Valuation (INR b)
Y/E March
Sales
EBITDA
PAT
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div Yield (%)
2013 2014E 2015E
403.5
115.6
94.2
164.9
13.3
695.8
25.7
28.5
25.5
17.0
4.0
11.8
1.5
473.6
124.4
98.1
171.7
4.1
814.6
22.7
25.8
26.2
16.3
3.4
10.5
1.6
519.6
135.9
108.7
190.2
10.8
946.2
23.2
24.4
26.3
14.7
3.0
9.1
1.8
Significant beat to Constant currency revenue estimate:
Infosys' 1QFY14 USD
revenue growth of 2.7% QoQ (v/s estimate of 1.2%) and Constant Currency
revenue growth of 3.4% QoQ (v/s estimate of 1.7%) were key positive
surprises, driving expectation of double digit revenue growth despite
retaining 10% guidance at the upper end. EBIT margin at 23.6% (flat QoQ) was
in line despite higher utilization and favorable currency; given revenue mix
shift in favor of onsite and greater impact from hikes than expected. PAT at
INR23.7b was in line despite revenue beat, due to lower other income.
Guidance unchanged despite impressive growth:
Infosys needs to grow its
USD revenues at a CQGR of 1.45% to meet the upper end of 6-10% guided
band. However, the management has refrained from increasing its guidance,
citing that it is too early to increase the same.
Change in focus yielding results, levers on margins could offset headwinds:
Infosys announced 7 large deal wins in 1QFY14, with a total TCV of USD600m+.
Over the past three quarters, Infosys has bagged USD1.6b worth of large
deals, largely in outsourcing (BITS), which could drive growth in Business IT
Service (BITS) as these ramp up going forward. There remains room to increase
utilization, and revenue proportion from offshore, two key margin levers.
Upgrading revenue and EPS estimates:
We have upgraded our FY14/15 USD
revenue estimates by 2.7%/3.8%, as Infosys' aggressive pursuit of improving
its growth rates through large outsourcing deals in the past few quarters has
yielded healthy deals. Our margin estimates are unchanged post the result,
and consequently our EPS estimates are higher by 2.7%/3.8%.
Valuation view:
Our target price of INR3,050 discounts FY15E EPS by 16x.
While upside in the near-term could be limited following a sharp up move in
the stock, we believe that the recovery in growth going forward, coupled
with the room to improve margins could drive further returns. Maintain
Buy.
Ashish Chopra
(Ashish.Chopra@MotilalOswal.com); +91 22 3982 5424
Siddharth Vora
(Siddharth.Vora@MotilalOswal.com); +91 22 3982 5585
Investors are advised to refer through disclosures made at the end of the Research Report.
1