Infosys - Q4FY13 results - Nirmal Bang

Infosys' 4QFY13 results came as a shocker, in the context of high expectations. The FY14 guidance in US dollar terms, at 6%-10% YoY, is well below our expectations of 12%-13%.

Dollar revenue came in at US$1,938mn, up just 1.4% QoQ (our estimate US$1,987mn). IT volume growth was 1.7%, while pricing declined 0.6%. A major disappointment was on the margins front, with EBITDA margin plunging 199bps QoQ to 26.5%, its lowest-ever level.

Net profit rose 1.1% QoQ (above consensus estimate by 3.8%), but only on a lower tax rate.

The company's management referred to pricing pressure in business operations (63% of FY13 revenue) and the need to drive a structural change in the business mix, which entails upfront investments while benefits will accrue over a period of time. The lack of confidence and unwillingness to comment on a likely range for margins is shocking, in our view.

We have cut our FY14E/FY15E EPS by 8%/10%, respectively and downgraded our target multiple to 12x from 14x, retaining our Sell rating on the stock with a revised target price of Rs2,084 (Rs2,685), despite the 21% fall on Friday.

Source : Equity Bulls

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