Infosys (INFO IN) - Result in-line with street expectation; guidance disappoints - Cholamandalam Securities

In 2QFY17, Infosys consolidated revenue grew (+10.7% YoY & +3.1% QoQ) to INR 173.1bn. In dollar terms, Revenue grew (+8.2% YoY & +3.5%QoQ) to USD 2,587mn. In CC terms, revenue grew by 3.9% QoQ & 8.9% YoY. Blended volume grew by 4.4% during the quarter (+3.1% onsite & +4.4% offshore), while realization declined by 40bps QoQ. Infosys lowered CC revenue growth guidance to 8%-9% from earlier guidance of 10.5%-12% for FY17 anticipation of weaker discretionary spending and volatile macro environment; the cut in revenue guidance was way ahead of street expectation.

EBITDA margin rose by 80 bps QoQ to 27.3% led by lower visa cost and operational efficiency. EBIT margin stood at 24.9% (+78 bps QoQ). Management has reduced the upper band of the EBIT margin guidance by 100 bps for FY17 to 25%. APAT declined ~5% QoQ to INR 35.1bn in 2QFY17 on account of higher tax and lower other income during the quarter.

All geography posted growth during the quarter. India Business recorded highest growth of 28.7% QoQ in CC term, followed by RoW (+5.2% QoQ), Europe (3.7% QoQ) and North America (2.7% QoQ). Amongst Industry segment, ECS grew by 7.3% QoQ, FSI segment grew by +5.2% QoQ amidst challenging demand environment , MFG & Hi-Tech (+2.1% QoQ) and RCL (+1.2% QoQ) in CC term, while retail CPG declined marginally.

Valuation: At CMP the stock is trading at a P/E multiple of 16.2XFY17E and 14.6XFY18E, which is 5 years and 10 years below historical average. We believe at CMP the stock has discounted near term challenging demand environment. Given the healthy deal wins we maintain the stock a BUY rating with revised target price of INR 1,196 by assigning P/E multiple of 17XFY18E EPS ( based on consensus estimate).

Risks: lower discretionary spend, INR appreciation are key risks.

Shares of INFOSYS LTD. was last trading in BSE at Rs.1052.05 as compared to the previous close of Rs. 1029.55. The total number of shares traded during the day was 350894 in over 9471 trades.

The stock hit an intraday high of Rs. 1057.5 and intraday low of 1024.55. The net turnover during the day was Rs. 367726394.

Source : Equity Bulls

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