Hyderabad: Market research and brokerage firm Religare Hichens Harrison has issued a first cut note on Infosys Technologies Ltd’s Oct-Dec quarter resulrts for the financial year 2009-10. The Religare Hichens Harrison has rated the stock with BUY, with a target price of Rs.3,080 against the current market price of Rs.2,490. Here is the first cut note for you.
Exceptional quarter:
Infosys has reported better-than-expected Q3FY10 results. The quarter’s performance was exceptional on both the volumes and cost management front. Though growth was led by BFSI, key verticals like telecom and manufacturing too witnessed a strong revival of 6.7% QoQ each. We maintain our Buy rating on the stock with a target price of Rs 3,080.
Quarterly results
- Revenues for Q3FY10 in dollar terms stood at US$ 1,232mn, a growth of 6.8% QoQ and 3.9% higher than our estimate of US$ 1,186mn. This is despite Q3 being a seasonally weak quarter.
- Cross-currency movement had a positive impact of 0.9% on revenues.
- Revenue growth for the quarter was supported by strong volume growth of 5.3% QoQ.
- Pricing, even in constant currency terms, has improved as the contribution from fixed priced projects remained stable QoQ at 38.3% of revenues.
- In rupee terms, revenues were Rs 57.4bn, reporting a lower growth of 2.8% QoQ due to rupee appreciation.
- The EBITDA margin for the quarter stood at 35.5%, an expansion of 100bps QoQ, against our expectation of a 130bps QoQ decline to 33.2%. The strong margin performance is despite salary hikes and increased SG&A investments in the quarter. Margin resilience is largely attributed to the 150bps QoQ improvement in utilisation including trainees.
- Net profits (IFRS) were Rs 15.6bn and grew 1.8% QoQ as against a 12% QoQ decline guided by the management.
FY10 and Q4FY10 guidance
- As expected, the management has raised its FY10 guidance.
- Revenue guidance in dollar terms has been raised by 3% and is now expected to be US$ 4.75bn–4.76bn, a growth of 1.8–2%.
- EPS under Indian GAAP is now pegged at Rs 106.85–107.06, a YoY growth of 2.2–2.4%. This is an increase of 7% as compared to the earlier guidance of Rs 100.
- For Q4FY10, revenues are guided to be US$ 1,240mn–1,250mn, a QoQ growth of 0.7-1.5% which we believe is conservative considering the strong growth witnessed in Q3FY10.
Other highlights
- BFSI grew the strongest in the quarter with 10.1% QoQ growth. In BFSI, revenue contribution from Insurance increased by 110bps QoQ to 8.5% of revenues.
- The telecom vertical witnessed a revival, growing 6.7% QoQ as compared to the 1.5% QoQ decline witnessed in Q2FY10.
- The US geography grew 7.8% QoQ in reported currency whereas Europe was flat in constant currency terms.
- In services, ADM grew the fastest at 10.6%; however the growth is attributed to increased contribution from application maintenance to 24.5%.
- Application development too, which is discretionary in nature, grew 4.9% QoQ after declining for four consecutive quarters.
- Forex gains in the quarter were limited to Rs 200mn.
- The company added 8,719 and 4,429 employees on gross and net basis respectively.
- Utilisation (excluding trainees) improved 300bps QoQ to 76.2%.
- Attrition inched upped in the quarter to 11.6%.