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Summary
of Contents
STOCK
UPDATE
Infosys
Technologies
Cluster:
Evergreen
Recommendation: Buy
Price target: Rs2,430
Current
market price: Rs2,183
Rupee appreciation spoils the party
Result highlights
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Infosys
Technologies (Infosys) reported a revenue growth of 5.9% quarter
on quarter (qoq) and 44.4% year on year (yoy) to Rs3,655 crore.
The consolidated revenue in dollar terms has grown by 10.1% qoq
but the appreciation of 3.8% in the rupee against the dollar
limited the growth of the revenues in rupee terms.
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The sequential
improvement of 60 basis points in the operating profit margin
(OPM) to 32.7% is commendable, given the adverse impact of the
rupee appreciation (of around 200 basis points) during the
quarter. The improvement in the OPM was driven by a 1.4%
improvement in the blended billing rates, a 40-basis-point saving
in the selling, general and administration (SG&A) cost, a
favourable shift towards higher proportion of offshore revenue
(offshore contribution increased by 90 basis points) and a steep
growth of 27.5% qoq in the high-margin banking product
business.
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The company
has also done an appreciable job of limiting the foreign exchange
(forex) fluctuation losses on the open forward contracts to just
Rs20 crore, which gets reflected in the other income component.
Consequently, the other income of Rs59 crore declined only 10.6%
qoq and was higher than market expectations.
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The earnings
growth of 5.8% qoq and 51.5% yoy to Rs983 crore is in line with
our estimates and consensus market expectations. However, the
company has failed to comprehensively surpass the street
expectations this time.
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What's more,
the guidance for Q4 is quite muted. The revenue and earnings are
guided to grow by 3.7-3.9% and 1.4% qoq respectively, which has
resulted in a mere 1% upward revision in the annual guidance. This
essentially means that the consensus earnings estimates already
imply a reasonably stiff sequential growth of over 13.5-14% in Q4
and are likely to result in the pruning down of the earnings
estimates by some analysts (in comparison with an across-the-board
upward revision of earnings estimates by analysts in the previous
two quarters). We are also revising down our FY2007 revenue
estimates by 0.4% and earning estimates by 0.65% to factor in the
impact of the rupee appreciation.
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At the current
market price the stock trades at 32.2x FY2007 and 24.2x FY2008
estimated earnings. Though the stock could underperform the
broader market in the short term, we continue to remain bullish on
it with a one-year perspective and maintain our Buy call with a
price target of Rs2,430.
MUTUAL FUNDS:
WHAT'S IN—WHAT'S OUT
Fund Analysis: January 2007
An analysis has been
undertaken on equity and mid-cap funds' portfolios, indicating the
favourite picks of fund managers for the month of December 2006.
Equity funds comprise of all diversified, index, sector and tax
planning funds, whereas mid-cap funds include a universe of 17 funds
such as Reliance Growth, Franklin India Prima Fund, HDFC Capital
Builder, Birla Mid-cap Fund etc. |
