Infosys 4QFY2013

For 4QFY2013, Infosys reported yet another disappointing quarterly result. The dollar revenues grew by just 1.4% qoq (Estimate: ~4% qoq) to US$1,938mn, much lower than our as well as street expectations. Excluding Lodestone, the USD revenue grew by just 0.8% qoq. Overall volume growth came in at 1.8% qoq (4.8% onsite volume growth and 0.5% offshore volume growth). Overall pricing declined by 0.7% qoq, impacted by lower billing days qoq and revenue mix shift towards lower bill rate services. In INR terms, revenue came in at `10,454cr, up merely 0.3% qoq. The company’s EBITDA and EBIT margin declined by 199bp and 213bp qoq to 26.5% and 23.6%, respectively, due to negative impact of onsite wage hikes given during the quarter. Pricing pressure witnessed by the company also weighed on margins during the quarter by ~2%. The PAT was held up at `2,394cr, aided by other income of `674cr vs. `503cr in 3QFY2013. The most disappointing thing was FY2014 USD revenue growth guidance of 6-10% which is way below street expectations of 12-13%. The range of the guidance is wide which indicates the volatility foreseen by the management. Also, the company has not put out any EPS guidance for FY2014 which could signify that there is risk towards the operating margin profile going ahead. Management commentary indicates that the environment remains challenging and the company continues to see delays in decision making from clients’ ends. Management indicated that pricing pressure is seen for typical IT operations kind of services which are mostly non-discretionary in nature. Over FY2012-14E, we expect USD and INR revenue CAGR of 8.7% and 8.2%, respectively. The company is now highly focused on growth and that many lead to sacrifice in terms of margins in the near term. At the CMP of `2,297, the stock is trading at 13.6x and 12.6x its FY2014E and F2015E EPS, respectively, which appears to be attractive compared its historical valuation. However, huge volatility in quarterly performance is unlikely to fetch Infosys a higher multiple in the near term. Source: AngelBroking