Wednesday, July 11, 2007

Infy Q1FY08: What do experts think of the nos?

Infosys which is known for positive surprises has once again beaten the market expectations and posted consolidated net profit of Rs 1079 crore (including tax write back) in the first quarter of FY08 against Rs 1,144 crore in the previous quarter.

How is the market reading the Infosys numbers? Most experts believe that the pressure will continue, are scaling down their price targets and earnings expectations.

Nilesh Shah of Envision Capital says that Infosys is fairly valued at current market price. The case for contraction of premiums is enjoyed by tier-I IT companies he adds. He feels that the IT sector will underperform in the next 2 quarters

JP Sinha of Ambit Capital says that the tech sector can underperform in the short-term.

Further on, Ashwin Mehta, Analyst at Ambit Capital said that the brokerage firm was looking at three things when the Infosys management spoke. Revival of revenues via Banking, Financial Services and Insurance was one of them and that has happened. The second point was increase in utilisation, which too had happened to almost 260 basis points. The third thing was the guidance that his firm was expecting downgrade of the guidance to Rs 77 to Rs 78 and that has happened.

"In terms of our estimates Infy is expected to do somewhere in the range of Rs 80 this year and around Rs 95-96 next year. At a 23 times multiple, it would trade at somewhere in the range of Rs 2200 one year down the line," Mehta said.

Dipan Mehta, Member, BSE & NSE says that Infy growth may slow down to 7% due to rupee.

Vibhav Kapoor of IL&FS says:

Infosys FY08 guidance of Rs 78-79 is in line with market expectations. We need some more clarity on the other income component. Overall, the business seems to be doing well & I expect the company will beat full year guidance. A bounce is expected in the Infosys stock as there could be some short covering. The stock should settle between Rs 2,000-2,100 in the short-term.

Devesh Kumar of Centrum Finance says:

Infosys' muted earnings guidance will not go down well with the markets. I expect the stock to correct. Sentiment for all dollar driven cos may turn negative post the Infosys guidance.

While, the FII view on this comes from Moshe Katri, MD at Cowen and Company. he said that the downward revision of rupee guidance is the biggest overhang for the stock today. Though, Infosys fundamentals remain strong. He sees Infosys operation metrics as better than last quarters.

DSP Merrill Lynch says:

EPS for FY08 is expected at Rs 82. Profit after tax, or PAT, is higher than expected on higher income from other businesses. Was expecting higher dollar-revenue.

JPMorgan says:

Q1 result is in line. Buy Infosys in the current weakness. Infosys stock will react negatively given the lower-than-expected FY08 guidance due to the management’s conservative stance. This guidance does not reflect any weakness in business trend at Infosys.

There would be positive surprises as the company moves into the traditionally stronger quarters. JP Morgan expects 40% plus dollar-based growth which includes 25% plus Re-based revenue growth and 30% plus dollar-based EPS growth.

CLSA says:

Infosys may remain sluggish till the October results when the next test of estimates and upsides will happen. Dollar-revenue in June quarter is much below the street estimates. The lack of revenue upside is key negative surprise of Q1FY08. Q1 results and outlook are unlikely to push estimates up.

From tech pack, CLSA expects Cognizant and Satyam to do better.

Angel Broking’s Harit Shah says:

I was disappointed with the kind of flat revenue growth that they have given plus the significant downgrade in the rupee-revenue guidance. But overall the result has been inline. As far as business growth is concerned, there is no problem; there are a 38-40% growth in dollar terms on YoY basis in revenues. On the volume side, there is about 7% sequential volume growth this quarter and over 30% on a YoY basis.

The disappointing factor was on the downgrade in rupee guidance as well as the downgrade in the EPS. But overall the company should be able to do about Rs 80-Rs 82 kind of a range in FY08.

Sanjeev Hota, IT analyst of Emkay says:

In revenue terms, it’s marginally below our expectations, but in the net profitability term, it is higher than our expectations. I am expecting an EPS of Rs 82 for FY08 from an earlier EPS of Rs 87 per share. Earlier we had a price target of Rs 2616 and we might revise it to Rs 2400.

It’s definitely going to be a buy from our side but it is going to be sluggish till the second quarter results. The second quarter has always been a very good quarter for Infy. Right now if you have taken a rupee rate of 40.5, if the rupee start depreciating, then Infy might revise its guidance upwards from the second quarter.

We believe that the margins are going to stabilize because this time the margin fall was driven by the improvement in the utilization rate. We expect the billing rate to improve in the next three quarters and the margins are going to stabilize around 29% for the full year.


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