Buy Infosys Technologies - Motilal Oswal

• Mkt Cap USD34.1b
• CMP Rs2,795
• Buy

Infosys' results were below our expectation with US$ revenue growth of 4.8% QoQ (vs est. of 5.3% QoQ), EBITDA margin was down 230bp (vs est. of 90bp decline) and PAT at Rs14.9b (v/s our estimate of Rs15.9b). Key highlights are:

1] Overall volume growth ahead of expectation at 6.9% QoQ (vs est. of 6.1%), blended pricing declines higher than anticipated at 2% QoQ (vs est. of 0.7% decline)

2] 3% upgrade in FY11 US$ revenue growth guidance to 19-21% (vs est. of 17-19%) was a positive surprise, higher end EPS guidance of Rs116.7 was below expectation. This was despite rupee depreciation assumption (guidance at INR/US$ of 46.45 vs 44.5 earlier). Infosys expects growth in 1Q and 2QFY11 to be higher than 3Q and 4Q.

3] Tapering off of growth in package implementation and its key revenue contributors - Europe and manufacturing, limits possibility of a mix based pricing uptick in FY11.

4] Historical high attrition of 15.8%, despite 2 hikes in 3 quarters of between 22-23% offshore was a key negative.

We believe the results Limit the possibility of a mix based pricing uptick in FY11 1 Do not provide conclusive evidence of shift in growth trajectory from 25% levels to 30% levels and 0 Indicate moderation in margins on supply side pressures. Our estimates remain largely unchanged, despite improvement in growth expectations from 23.3% to 25% in FY11, on moderation in margins. We continue to prefer Infosys within the top tier universe, though believe shorter term returns might be limited on lack of triggers in the results. Maintain Buy, target price of Rs3,160.

Source : Equity Bulls

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