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Infosys 3QFY2013 performance highlights and results update

Contributed by Angel Broking

Infosys surprised the street with better-than-expected results for 3QFY2013 and also raised its full year guidance, contrary to our as well as street expectations of reducing it. Revision of guidance indicates that the management is confident about growth prospects in the short to medium-term versus last few quarters. The company kept its organic revenue growth guidance for FY2013 intact at 5% yoy while including Lodestone’s acquisition the company expects full year FY2013 dollar revenues to grow by at least by 6.5% yoy. We maintain our Accumulate rating on the stock.

Quarterly highlights: For 3QFY2013, Infosys reported revenue of US$1,911mn, up 6.3% qoq. On organic basis, dollar revenues grew by 4.2% qoq. Volume growth was tepid though at 2.0% qoq. One more positive take away was that despite giving offshore wage hikes the company’s EBIT margin declined by just 66bp qoq to 25.7% as opposed to a decline of ~100bp that was expected. The PAT came in at Rs.2,369cr, flat qoq, aided by other income of Rs.503cr.

Outlook and valuation: After several quarters of lower-than-expected performance, Infosys cheered the street with better than estimated numbers in 3QFY2013. The current quarter performance may support the company’s stock in the near term. However, the company’s management continues to remain cautiously optimistic on the business environment. Management commentary indicates that the environment remains exactly where it was a few months back. Infosys signed eight large deals with TCV worth US$750mn during 3QFY2013. Early comments from the management indicate that IT budgets will be flat to marginally negative in CY2013. Over FY2012-14E, we expect a USD and INR revenue CAGR of 8.3% and 14.6%, respectively. Over FY2012–14E, we expect a CAGR of 8.6% and 9.0% in EBIT and PAT, respectively. At the current market price of Rs.2,712, the stock is trading at 16.7x FY2013E and 15.7x FY2014E EPS. We value the company at 16.5x FY2014E EPS of Rs.173 and maintain our Accumulate rating on the stock with a target price of Rs.2,850.