Infosys - First Cut - Q1 FY2013 Results - Microsec Research

Infosys Ltd (INFY) announced its consolidated Q1 FY2013 results on 12 July 2012. While the company's top line came in line with our as well as Bloomberg consensus estimates, its bottom line remained below both our and consensus expectations. A glimpse of INFY's Q1 FY2013 numbers vis-à-vis estimates, Q1 FY2012 and Q4 FY2012 is as follows:

INFY's top line rose 8.6% q-o-q to Rs.9,616 Crores in Q1 FY2013. As expected, the increase in top line was largely driven by depreciation of Rs. against $. Depreciation of home currency helped the company post this decent growth despite a 1.1% sequential decline in $ terms revenues to $1,752 Mn. However, INFY reported 1.2% sequential decline in net profits to Rs.2,289 Crores. The depletion in bottom line was driven by a 9.9% sequential expansion in staff costs and significantly lower other income component. The company's other income stood at Rs.476 Crores during the quarter compared with Rs.652 Crores in Q4 FY2012. Staff cost reported by INFY came significantly above our estimates and remained the key reason for deviation of our estimates from the actual numbers.

As widely expected, INFY did not provide guidance for Q2 FY2013E. However, it lowered its $ term revenue and EPS guidance for FY2013E. The company now expects top line to be at least $7.34 Bn and EPS to be at least $3.03 in FY2013E. In Q4 FY2012 results, INFY provided FY2013E top line guidance of $7.553-$7.692 Bn while it expected the EPS to lie between $3.12 and $3.17 during FY2013E. Nevertheless, depreciation of Rs. helped the company to raise its annual revenue and EPS guidance in Rs. terms. INFY now expects the revenues to remain at least Rs.40,364 Crores while it guided minimum EPS of Rs.166.46 per share for FY2013E, which are ~5% higher than the guidance provided in Q4 FY2012.

This was the second consecutive quarter when INFY reported a sequential decline in top line as well as bottom line. In current quarter Europe was a big drag on the company's performance with a sequential decline of 8.1%. Only geography where INFY reported a top line growth during the quarter was the US, where its revenues grew q-o-q by 1.6%. However, it was not enough to help the company post a growth in $ revenues. Going forward, the company foresee pricing pressures and laggard performance in Europe to remain key challenges. To gain further clearance on the business environment in Europe, we would be closely watching TCS' performance in the geography. TCS is expected to announce its results post market hours, today.

*We continue to rate INFY a BUY with a target price of Rs.2,722 per share. However, TCS remains our top pick in the sector with its superior fundamental performance*.

Source : Equity Bulls

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