Infosys – Topline Below Expectations + Margins Better

Infosys reported 1.2% revenue growth QoQ in constant currency, which was below our/street expectations. Revenue upsides were essential to drive FY11 upgrades and lack of the same is a disappointment, in our view. Next quarter guidance (flattish) builds in no “year-end budget flush” – one can argue that (as usual) it is conservative.

Margins improved another ~50bps sequentially, which was the key reason for EPS beat (vs. our estimates). Infosys has managed margins very well through the downturn and 2Q margins are a 7-year high (34.6% EBITDA margins in 2Q).

Management sounded more positive than the recent past and expects flattish to a marginal increase in 2010 IT budgets. However, they don’t expect a budget flush which results in a flattish 3Q guidance. Pricing renegotiation are largely over.

Analysts expect full year EPS of Rs 103.96 for FY10 and Rs 110 for FY11. With INR getting stronger Vs the USD, Investors CAN Book Profits in the counter and take exposure to Indian Inclusive Growth Story Stocks. The days of HOLDING Infosys Fad is behind us 🙂