Maintain 'hold' on Infosys – TP Rs.2600 - Geojit BNP Paribas

- Currently, the stock is quoted in the range of Rs.2395.

- 2QFY13 has been disappointing. USD revenue growth of 2.6% qoq was below the street estimates of 3.3%.

- EBIT margin fell 166 bps.

- EPS was in line with market estimates, largely on higher other income.

- Organic growth guidance at 5% for FY13 has been maintained. However, its EPS guidance in rupee terms has been cut on new forex assumptions and wage hike.

- Europe grew 5.1% qoq at constant currency (cc). But, the revenue shortfall was largely due to the sluggish growth in North America and the rest of the world.

- Product revenue declined 13% qoq due to volatile sales.

- Financial services were flat qoq, weaker than the 3-4% growth in other verticals.

- Management now see a 200bp margin drop in FY13 (50-100bp earlier) on wage hikes and investments in transformational deals.

- India turned in a surprising operating loss because of sub-scale operations, while rest of the world margins fell 700bp. All of which suggests margins could be under pressure and increased competition may be hurting.

- The organic growth guidance will require a demanding 3.7% average q-q USD revenue growth through 4Q, and will need q-q acceleration in a traditionally weak 2H. This suggests further downside risk to estimates and our estimates are under review.

Source : Equity Bulls

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