Maintain 'hold' on Infosys - TP Rs.2650 - Geojit BNP Paribas Financial Services

- 1QFY13 results missed market expectations in all major counts. USD revenue missed market expectations by 1%, EBIT in rupee terms missed 9% and the EPS missed 2%.

- EPS miss would have been worse if not for lower SG&A (selling, general & administrative expenses), lower taxes and higher other income.

- USD revenue growth guidance of 5% for FY13 is lower than the street estimates of 6-8% yoy.

- EPS guidance of Rs.166 for FY13 is lower than investors' view of Rs.175-185.

- Weak realization of -3% qoq at constant currency saw EBIT margin contraction of 200 bps despite a 400 bps boost on forex gains.

- The company attributed the loss of pricing power to sporadic cuts and mix changes but it seems that this explains only a part of the real picture and fear that cuts may have been more widespread. This is because three verticals contributing 76% of revenue saw margin declines 150-340 bps qoq.

- Part of the miss was from a one-off loss of a USD 15 million contract from a European energy and utilities client.

- USD revenue growth guidance is more realistic now. But, EPS guidance does not factor in potential wage hikes, if demand improves.

- Maintain 'hold' on Infosys.TCS is preferred in the near term because of its more predictable earnings.

Source : Equity Bulls

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