Infosys - 2QFY13 Results Update - Motilal Oswal

Infosys' 2QFY13 results indicate some pick-up in momentum for the company, substantiated by: [1] performance around deal wins (6 large deals, 2 with a TCV of USD200m+, 2 in IMS, 8 transformational deals), [2] aggressiveseeming 3.7% CQGR guidance in USD revenues for 2H and [3] Continued orders' traction in Products & Platforms (TCV of USD500m), tying in with 14.5% QoQ growth in volumes ex-IT Services (which includes Platforms).

- Volumes surprised positively (3.8% in IT Services v/s estimate of 3%), USD revenue was in line (2.6% QoQ growth v/s estimate of 2.9%), dragged by revenues from India and Products / Platforms. Realization rate was flattish QoQ.

- EBIT margin declined 170bp QoQ to 26.3%, led by: [1] higher sub-contractor costs (3.5% of revenues v/s 3% in 1QFY13), [2] excess provision for post-sales client support (impact of 50bp QoQ) and [3] promotion linked wage increases. Yet, PAT at INR23.7b was close to our estimate of INR24b, driven by forex gains of INR1.57b.

- Infosys maintained its FY13 USD revenue growth guidance of at least 5% YoY. The guidance does not includes Lodestone acquisition. FY13 EPS guidance was revised down to INR160.6 (v/s INR166.46 earlier), at assumed currency rate of INR53/USD for rest of year (v/s INR55/USD assumed in 1QFY13). Operating margin is now expected to decline by 200bp YoY in FY13, led by wage hikes of 6% offshore (effective from Oct 1st) and 2-3% onsite (effective from January 1st).

- Our revenue estimates are largely unchanged post the results (-0.1% / -0.9% for FY13E/FY14E). Our EPS estimates for FY13E / FY14E are lower by 3.8% / 3.2%, factoring in moderation in our EBIT margin assumptions (down 161bp / 131bp). We take comfort in increased revenue visibility on the back of deal wins, and would treat the correction in the stock post the results as an entry opportunity. Maintain Buy, with a Target Price of INR2,800, which discounts our FY14E EPS by 16x.

Source : Equity Bulls

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