Infosys - Healthy Q3 -growth inline, margins recover. Buy. - Religare

INFO Q3 US$ revenues grew by 1.7% QoQ (RCMLe 1.8%) led by 2.6% offshore volume growth. Margins adj. for Q2-one offs were up 150bps QoQ ahead of expectations. Further they raised FY14 US$ revenue guidance to 11.5%-12% growth, implying a healthy 1.4% QoQ growth for Q4. Overall an inline set of numbers indicating that the turnaround continues at a steady pace despite management churn. While we do not see immediate upgrades to our estimates, we remain positive on the stock given improving growth trajectory and reasonable valuations. Maintain Buy.

Inline Q3FY14- turnaround in progress: Revenues at US$ 2.1bn, up 1.7% QoQ, inline with expectations, driven by a strong 2.6% offshore volume growth, even as onsite volumes fell 3.4%. NA was weak down 0.8% QoQ CC, however Europe/India/ ROW grew by strong 3.5%/8.1%/5.2% QoQ CC. BFSI grew 1.5% QoQ and Retail grew by 2.9% QoQ, while manufacturing declined by 0.8% QoQ CC. EBIT margins adjusted for Q2 one-time visa provisioning were up 150bps QoQ driven by operational improvements. PAT at Rs 28.7bn (up 21% YoY) ahead of expectations due to higher margins and forex gains of Rs1.2bn.

FY14 guidance raised: INFO raised FY14 guidance to 11.5%-12% US$ revenue growth, inline with expectations. At the top end the guidance implies a 1.4% QoQ growth in Q4, a positive in our view given the conservative stance that they have taken in the past few quarters and a soft seasonality.

View: Overall the topline performance was inline with expectations and indicates a steady growth turnaround to be in progress. However margin which has been a concern for Infosys over the last couple of quarters has been addressed as margins have recovered to 25% at EBIT level. We expect street to raise their EPS estimates by 3-4% but maintain our FY14/FY15 EPS estimates at Rs188/Rs218. We continue to like Infosys as a demand recovery play and improving macro could drive upgrades. Maintain BUY.

Source : Equity Bulls

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