Citigroup maintains `Hold' on Infosys

RESEARCH: CITIGROUP

RATING: HOLD

CMP: RS 2778

Citigroup maintains `Hold’ rating on Infosys. Infosys reported Q1 revenue of $1,358 million, EBIT margin decline of about 200 bps and net profit of Rs 1,490 crore. Volume growth was strong at about 7.6% q-o-q while pricing declined about 60 bps. For FY11, Infosys raised the revenue growth guidance to 19-21 % growth and EPS guidance to Rs 112-117 .

Implications for the sector: (a) Supply side issues increasing - Infosys, despite being proactive with wage hikes, has seen a uptick in attrition - margin management could be a challenge ; (b) Europe’s outlook continues to be challenging; (c) Pricing uptick could take more time than anticipated. A large part of the management’s EPS guidance upgrade was due to currency. Citigroup believes EPS upgrades, if any, are unlikely to be seen until the September quarter results, and with valuations of about 23x FY11E Citigroup sees the upside as limited.