Infosys Technologies has put a dismal performance for the FY 2009-2010. Pricing declined ~70 bps (constant currency). EBITDA margin declined ~150bps (our exp: ~90bps decline). Reported net profit was Rs16b, in line. However, excluding gains on sale of investment (Rs.480m), it was lower than expectations.
The company expects Overall, US$ revenue growth guidance builds in 3-4% QoQ growth for its guidance of 16-18% YoY revenue growth. EPS growth is muted at -2% to +2% YoY EPS growth with EPS of Rs106.8 to Rs111.3 at Rs44.5/US$. Guidance assumes -150bps YoY margin decline due to rupee and wage hikes. Working backwards, assuming flat YoY margins and rupee rate of Rs45/$ the guidance would work out to ~Rs118/share (+8%yoy EPS growth) in our view.
Infosys has to sail through turbulence of Telecom and insurance sluggish quarters. Wage hikes of ~15% offshore and high attrition – highlighting supply-side challenges for the sector.
FY 2011 EPS Expectations – Morgan Stanley – Rs 126 and Citi Rs 121 while the consensus is at Rs 119. Investors can book profit around Rs 2700 to 2800 and consider exposure to TCS on corrections.
Goldman Sachs in a report said,
Strong USD revenue guidance underscores a sanguine outlook for the sector. But we believe this is already reflected in its valuations, trading at 23.5x on FY11E P/E, a 29% premium to the sector. Hence, we maintain our Neutral rating and 12-m Director’s Cut-based Target Price of Rs2,529.