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Summary
of Contents
PULSE TRACK
STOCK UPDATE
Infosys
Technologies
Cluster:
Evergreen
Recommendation: Buy
Price target:
Rs3,730
Current market price: Rs3,386
Exceptional performance
Result highlights
-
Infosys Technologies reported an impressive
revenue growth of 14.9% quarter on quarter (qoq) and 45.5% year on
year (yoy) to Rs3,015 crore during the first quarter ended June
2006. The sequential growth in the revenues was driven by the
cumulative impact of a robust growth in the volumes (8.5%), higher
billing rates (blended rates up by 1.8%), rupee depreciation (by
3.2%) and a growth of 21% and 33% in the business process
outsourcing (BPO) and the banking product business respectively.
-
The operating profit margin (OPM) declined by
230 basis points sequentially on the back of an adverse impact of
the salary hikes (3.3%) and increased cost of visa charges (1.3%).
On the other hand, the favourable foreign exchange (forex)
movement resulted in a positive impact of around 2.3% on the
margins at the operating level. The decline in the operating
margins was higher than the expectations of a 70-80-basis-point
decline as per the consensus estimates. That is because the
management invested aggressively in additional visas and in
building the sales & marketing infrastructure (sales, general
and administration [SG&A] expenses stood at 15.3% of the
revenues as against 14.1% in Q4FY2006).
-
The other income jumped by 77.8% qoq and by
347.9% yoy to Rs128 crore. The other income was driven by the
positive net forex impact of Rs52 crore (instead of an expected
loss), arising from the huge translation gains of around Rs80
crore.
-
The earnings growth was also boosted by lower
depreciation charges as a percentage of sales. The depreciation
stood at 3.5% of the revenues as compared to its expected range of
4-4.5%. Consequently, the consolidated earnings grew by 18.9% qoq
and by 50.4% yoy to Rs800 crore (Rs794 crore after excluding
one-time items), much higher than the consensus estimates.
-
In addition to the much higher-than-expected
performance in Q1, the steep upward revision in the annual growth
guidance is also encouraging. The consolidated revenues are guided
to grow by 40.2-40.7% to Rs13,350-13,400 crore, up from
Rs12,254-12,446 crore indicated in the beginning of the fiscal.
The earning per share is guided to grow by 38.3-39.6% to
Rs124.5-125.7 as compared to Rs113.9-115.6 given earlier.
-
In terms of the guidance for Q2, the revenues
and earnings are guided to grow sequentially by 8-8.8% and 2-3%
respectively.
-
At the current market price the scrip trades at
25.7x FY2007 and 20.9x its FY2008 estimated earnings. We maintain
our Buy call on the stock with a revised target price of Rs3,730.
SECTOR
UPDATE
Telecom
Bharti
reigns supreme
India added a total of 4.9 million new
cellular users in June, a rise of 4.7%, to take the country's total
cellular subscriber base to 109.4 million. Falling handset costs and
pre-paid packages fuelled the strong growth of cellular subscribers
during the month. The addition of 3.21 million users in the month
has taken the GSM subscriber base to 78.5 million. On the CDMA
front, 1.7 million new users were added in June, growing by 5.7%
over May 2006. |
