Views of Ms. Ankita Somani - Research Analyst -IT, Angel Broking on Infosys 3QFY2014 results

"Infosys reported 3QFY2014 results with operating margins ahead of our expectations, but top-line came in below estimates. Dollar revenues grew by 1.6% qoq (estimate - 2%). Constant currency revenue growth was 1.2% qoq led by merely 0.7% qoq volume growth (largely offshore led). Volume growth was lower than expectations because onsite volumes declined by 3.4% qoq mostly due to offshore effort shift. Bended pricing grew by 0.7% qoq. Revenues from Europe grew by 5.5% qoq while declined by 0.8% qoq from North America geography. In INR terms, revenues came in at Rs. 13,026cr, up 0.5% qoq. Infosys' operating margins have been a concern since last six quarters and during 3QFY2014 the company posted whopping 145bp qoq growth in EBIT margin to 25.0%, led by operational efficiency with inch up in utilization level to 74.1% (73.7% in 2QFY2014) and sequential decline in S&M spends. Net profit came in at Rs. 2,875cr, up 9.5% qoq.

The company revised its USD revenue growth guidance to 11.5-12% (expectation: 11-12%) from 9-10% given earlier, implying 1.4% qoq USD revenue growth in 4QFY2014 to meet the upper end of guidance which seems attainable as currently we were factoring Infosys to clock ~2.2% qoq USD revenue growth in 4QFY2014. The management opined that the global economic environment has improved and looks exciting for IT services industry. The company has still got headroom to increase its utilization level by ~300bp to be comparable with peers and this, in turn, will assist in increasing operating margins further. The company added one US$300mn+ client and signed 20 deals during the quarter. We believe that the impact of current high level exits could be felt in the medium term. However, a company like Infosys is system driven with a healthy management bandwidth and hence the impact will not be long lasting. The current set of results as well as guidance given is largely inline with expectations and factored in the stock, which limits a sharp the upside potential for the script in the immediate future. We recommend Accumulate rating on the stock."

Source : Equity Bulls

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