On the occasion of Infosys Q3 results, Puneet Wadhwa spoke to Sanjeev Hota, Asst Vice President Research (IT), Sharekhan, about his take on the numbers and future expectations. Here are the excerpts:
Were the Infosys’ results in-line with your expectations? Were you surprised with the guidance for FY12?
The results were broadly in-line with our expectation. On a year-on-year (y-o-y) basis, the profit came in 33 per cent higher from Rs 1,780 crore last December. On the margin front, we were expecting EBIT margins at 31.5 per cent and the company has reported margins at 31.2 per cent for the recently concluded quarter.
What surprised negatively is the guidance for FY12. They have guided for a flattish growth in Q4FY12 and the full year revenue growth guidance is at 16.4 per cent. This is tad below our expectation of at least 17 per cent growth in revenues in FY12, which is somewhat reflected in the stock performance post the results announcement.
What are the key takeaways, according to you, from the results?
The key takeaway, if you see, is the 3 per cent sequential volume growth which again is tad below expectation, and this is despite making two Saturdays working in the quarter. The company has not been able to achieve a growth higher than 3 per cent and we were expecting around 4 per cent growth in volumes.
Going forward, given the current cautious statements coming from the Infosys’ management in the backdrop of macro uncertainty, the guidance for FY13 will also be on a disappointing side.
Would you scale down your FY13 EPS estimates given the guidance given the rupee-dollar equation?
Well, for FY13 we are already on the lower end of the spectrum. For FY13, we are expecting a revenue growth of 12.6 per cent, which is below the general Street expectation of around 14 per cent. We are not changing our estimates for FY13 in a hurry. However, if the macro-economic environment does not improve and IT budgets are lower, there will be a risk to the guidance.
Infosys has taken Euro-USD rate of 1.29 and the Euro-USD is currently hovering around 1.27. If this trend continues, I feel there is a threat to the FY12 guidance itself.
How do you see the Rupee panning out in the next three – six months? What will be the likely impact on the fortunes of IT companies?
Looking at the dynamics that are playing out currently, the Rupee is likely to depreciate against the USD and will remain in a range of 51 – 53 levels in the next two quarters. This will definitely boost the numbers in INR terms, but what actually needs to be seen are the USD numbers.
How are you positioning yourselves in the IT space now given Infosys' results? What is your call on the three heavyweights— Infosys, TCS and Wipro?
We continue to remain cautiously positive on the information technology (IT) sector. Our top pick in this space is TCS (Target Price: Rs 1,250) with a buy rating. We continue to maintain our hold rating on Infosys (Rs 2,850), buy rating on HCL Technologies (Target Price: Rs 523) and a hold rating on Wipro (Target Price: Rs 410).
Do you expect the mid-cap IT companies to fare any better in terms of the December 2011 quarter and the guidance?
If you look at the results in Rupee terms, they will be much better and stronger. However, the third quarter is seasonally a weak quarter for IT firms. Companies having higher exposure to hedging may have higher mark-to-market (MTM) losses given the Rupee-Dollar equation. Overall, the results will be good for the mid-cap companies too.
