Religare Securities maintains 'Hold' rating on Infosys

INFOSYS TECHNOLOGIES

RESEARCH: RELIGARE SECURITIES

RATING: HOLD

CMP: Rs 3076

Religare Securities maintain their Hold rating on Infosys. Infosys revenues grew 10.6% Q/Q in USD terms driven by 1) 7.2% Q/Q volume growth,

2) onsite pricing improvement of 2.4% qoq and

3) cross currency benefits as growth in Europe exceeded North America. Margins improved by 190 bps, which is a normal trend this quarter led by improvement in gross margins. Overall, EPS at Rs 30.4/share was up 17% Q/Q inline with expectations. The annual guidance implies 4QFY11 US$ growth of 1.4%, below expectations.

However Re EPS guidance for 3QFY11 was revised up by only 0.3% due to appreciating rupee. Full year rupee EPS guidance was increased only marginally to Rs 115-117/share largely due to Rupee appreciation. Religare continue to believe that consensus estimates are already too high and rupee appreciation could infact lead to EPS downgrades. Overall a good quarter from Infosys, as expected, driven by robust volumes.

While the near term demand momentum remains good, there is limited clarity on the CY11 tech spending and appreciating rupee remains a risk. Further consensus estimates already factor in strong volume momentum in FY12 and that there is limited comfort at current valuations (P/E ) of 24x/20x on FY11E/Fy12E.

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