Infosys - Disappointing operating performance, lower guidance - Microsec

Infosys Ltd (INFY) announced its consolidated Q2 FY2013 results on 12 October 2012. Both the company's top and bottom line came in line with our as well as Bloomberg Consensus estimates. However, INFY's reported EBIDTA was significantly lower than our as well as street estimates. A glimpse of the same is as follows:

While INFY's top line inched higher by 2.5% q-o-q to Rs.9,858 Crores, its bottom line rose 3.5% sequentially to Rs.2,369 Crores in Q2 FY2013. A 0.2% q-o-q dip in pricing along with spiking Selling and Marketing expenses led to a 150 basis point (bps) sequential decline in the company's EBIDTA Margins. On a y-o-y basis as well, INFY's EBIDTA margins dipped 193 bps to 29.1%. However, the company was able to post net profits, in line with our estimates, driven by healthy other income. Other income reported by INFY during the quarter, at Rs.706 Crores, was at the historically high levels.

Although, to cheer investors, INFY announced interim dividend of Rs.15.0, it failed to boost sentiment due to lowered FY2013E EPS guidance. The company now expects to report EPS of Rs.160.21 per share in FY2013 compared with earlier estimate of Rs.166.46, a part of which was expected led by appreciation of Rs. vis-à-vis the greenback. However, the unanticipated part was – downward revision of $ term EPS guidance from $3.03 to $2.97. The company's performance during the quarter remained disappointing on operating front whereas other income helped it limit the damage, of it, on bottom line.

With continued quarters of subdued performance, the stock underperform its peers in recent quarter. With the trend expected to remain the same, it may continue to underperform its peers. With in the sector, we continue to prefer TCS over INFY. However, given the appreciation of home currency against $, we suggest a cautious approach in IT stocks at current juncture.

Source : Equity Bulls

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