Infosys Ltd (Q3 FY14)

India Infoline News Service | Mumbai |

Infosys’ reported Q3 FY14 dollar revenue growth performance was weaker than expected.

CMP Rs3,549, Target Rs4,132, Upside 16.4%
  • Revenue growth was sluggish than expected; volume growth muted at 0.7% qoq 

  • FY14 dollar revenue growth guidance raised to 11.5-12%, in-line with expectations 

  • Growth remains disparate within verticals, geographies and services; client mining continues

  • OPM expansion was ahead of expectation; aided by offshore shift and efficiency gains

  • Estimate strong earnings growth over FY13-16; Retain BUY and upgrade 9-12 month TP to Rs4,132

Result table
(Rs mn)
Q3 FY14
Q2 FY14
% qoq
Q3 FY13
% yoy
Net sales
130,260
129,650
0.5
104,240
25.0
Operating profit
36,200
33,800
7.1
29,700
21.9
OPM (%)
27.79
26.07
172 bps
28.49
(70) bps
Depreciation
3,610
3,340
8.1
2,930
23.2
Other Income
7,310
5,100
43.3
5,030
45.3
PBT
39,900
35,560
12.2
31,800
25.5
Tax
11,150
9,400
18.6
8,110
37.5
Effective tax rate (%)
27.9
26.4
-
25.5
-
Adjusted PAT
28,750
26,160
9.9
23,690
21.4
Adj. PAT margin (%)
22.1
20.2
189 bps
22.7
(66) bps
Extra Ordinary items
-
(2,090)
-
-
-
Reported PAT
28,750
24,070
19.4
23,690
21.4
EPS (Rs)
50.3
42.1
19.4
41.4
21.4
Source: Company, India Infoline Research

Revenue growth was sluggish than expected; volume growth was muted at 0.7% qoq  

Infosys’ reported Q3 FY14 dollar revenue growth performance was weaker than expected. Constant currency (CC) growth of 1.2% qoq came in lower than our estimate of 2.1%. There was a material improvement in CC pricing both onsite and offshore by 1.8% qoq and 1.7% qoq respectively. However, the blended pricing improved only by 0.2% qoq due to 130bps effort mix shift towards offshore. Against our volume growth expectation of 2% qoq, company delivered a rather muted 0.7% qoq growth materially impacted by furloughs and holidays in the quarter. Cross currency movements aided dollar revenue growth by 50bps due to dollar depreciation against other business currencies.


FY14 dollar revenue growth guidance raised to 11.5-12%, in-line with expectations   

Implying modest growth of (0.3)-1.4% qoq in the current quarter, Infosys revised its annual dollar revenue growth guidance to 11.5%-12% from 9-10%. The guidance raise along with improved business commentary distinctly suggests an upgrade in sentiment and growth expectation at Infosys. We expect the company to surpass its guidance.


Growth remains disparate within verticals, geographies and services; client mining continues

During Q3 FY14, while revenues from manufacturing de-grew marginally, BFSI and RCL (Retail, Logistics, CPG and Life Sciences) verticals witnessed better-than-company CC revenue growth of 1.5% qoq and 2.9% qoq respectively. Regionally, growth was driven by non-US geographies with revenues from Europe, RoW and India registering strong CC growth of 3.5%, 5% and 8.1% qoq respectively. Within service offerings, growth was impressive in Testing (5% qoq), BPO (3.3% qoq) and Products (4.4%) while maintenance and PI/consulting grew slightly ahead of overall revenues. Client mining initiatives of Infosys continues to manifest in brisk revenue growth (3% qoq) from non-Top 10 clients and increasing number of clients in sub-US$50mn buckets. 


OPM expansion was ahead of expectation; aided by offshore shift and efficiency gains

Infosys’ OPM performance was strong with improvement of 170bps qoq, much better than our expectation of 100bps. In spite of marginal dip in utilization (from 73.1% to 72.5%), company’s gross margin improved by 100bps qoq supported by offshore effort shift, material pricing improvement and various efficiency initiatives taken. The 90bps qoq decline in sales & marketing cost as a percentage of sales also contributed significantly towards OPM expansion. At 4.9%, the S&

BSE 1,003.45 [7.65] ([0.76]%)
NSE 1,003.75 [6.75] ([0.67]%)

***Note: This is a NSE Chart

 

Advertisements

  • Save upto Rs.2.67 lakh with Pradhan Mantri Awas Yojana ...Know more
  • Now Save Rs.3150 on your Demat Account ...Click here
  • Now get IIFL Personal Loan in just 8* hours...APPLY NOW!
  • Get the most detailed result analysis on the web - Real Fast!
  • Actionable & Award-Winning Research on 500 Listed Indian Companies.