india bulls infosys 20jan09
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8/8/2019 India Bulls Infosys 20Jan09
1/5
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Please see the end of the report for disclaimer and disclosures. -1-
INFOSYS TECHNOLOGIES LTD
RESEARCH
EQUITY RESEARCH January 16, 2009
Well placed to weather near-term headwinds
Infosyss Q309 result was in line with expectations, despite pricing pressure
and slow volume growth. Revenues grew 6.8% qoq to Rs. 57.9 bn, helped by
the depreciation of the rupee vis--vis the dollar. Though revenues in dollar
terms declined 3.7% qoq, effective cost management and rupee depreciation
boosted the EBITDA margin by 199 bps qoq to 35.1%.
Volume growth to moderate: With corporate entities worldwide curbing
their IT spends, we expect new deals and ramp-ups to slow down across the
Services vertical. However, the Companys strong brand equity and
corporate governance standards may attract jittery clients of Satyam and
other small/mid-sized IT services companies to Infosys. This may lessen the
adverse impact of the global slowdown.
Pricing pressure is unavoidable: We expect the billing rate to decrease by
24% in the next 34 quarters, considering that large clients from the
developed economies may demand price cuts. However, Infosyss strategy
to focus on fixed-priced projects and value-based pricing is likely to ease
billing pressure in the medium term.
Focus on operational efficiency: Infosys is steadily improving its offshore
mix, which should help counter the pressure on the EBITDA margin aconstant currency (FY09 at 32% to FY10 at 31%). Moreover, we expec
wage inflation to fall in FY10 as the Company may reduce its offshore
bonuses.
Gaining footprints in high-end services: Infosys is gaining traction in high-
margin services such as Consulting, System Integration, and Infrastructure
Management. As a result, it is better placed than its competitors to provide
end-to-end solutions. This may further help Infosys to win large and
transformational deals in the medium-to-long term.
RESULTS REVIEW
Share Data
Market Cap Rs. 726.2 bn
Price 1,268.25
BSE Sensex 9,323.59
Reuters INFY.BO
Bloomberg INFO IN
Avg. Volume (52 Week) 0.4 mn
52-Week High/Low Rs. 2,017 / 1,040
Shares Outstanding 572.6 mn
Valuation Ratios (Consolidated)
Year to 31 March 2009E 2010E
EPS (Rs.) 102.7 85.9
EPS Growth (%) 26.4% -16.4%
PER (x) 12.3x 14.8x
EV/ Sales (x) 3.0x 3.1x
EV/ EBITDA (x) 9.2x 12.4x
Shareholding Pattern (%)
Promoters 17
FIIs 33
Institutions 9
Public & Others 42
Relative Performance
0
500
1,000
1,500
2,000
2,500
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
INFOSYS Rebased BSE Index
Infosys Technologies Limited Hold
Key Figures (Consolidated)
Quarterly Data Q3'08 Q2'09 Q3'09 YoY% QoQ% 9M'08 9M'09 YoY%
(Figures in Rs. mn, except per share data)
Net Sales 42,710 54,180 57,860 35.5% 6.8% 121,500 160,580 32.2%
EBITDA 13,920 17,940 20,310 45.9% 13.2% 37,600 53,040 41.1%
Net Profit 12,310 14,320 16,410 33.3% 14.6% 34,100 43,750 28.3%
Margins(%)
EBITDA 32.6% 33.1% 35.1% 30.9% 33.0%
NPM 28.8% 26.4% 28.4% 28.1% 27.2%
Per Share Data (Rs.)
EPS 21.5 25.0 28.6 33.3% 14.6% 59.5 76.3 28.3%
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8/8/2019 India Bulls Infosys 20Jan09
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8/8/2019 India Bulls Infosys 20Jan09
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Please see the end of the report for disclaimer and disclosures. -3-
INFOSYS TECHNOLOGIES LTD
RESEARCH
EQUITY RESEARCH January 16, 2009
Improvement in operational efficiency
During the quarter, the Company recorded an improvement across al
operational parameters, such as the offshore mix, the fixed-price projects
mix, and the attrition rate. However, the utilisation level (including that of the
trainees) went down by 90 bps qoq to 68.5%. We expect the utilisation leve
to remain low at 6768% for the next 45 quarters, considering the slowing
deals inflow and ramp-ups.
Key Events
Infosys bagged a five-year, multi-million dollar deal from AstraZeneca. It
will provide end-to-end application maintenance services to AstraZeneca
in areas such as manufacturing, supply chain, finance, human resources
and other corporate functions.
Raiffeisen International selected Infosyss Finacle to standardise and
consolidate their technology platform.
Mercator, a Dubai-based business technology provider, has joined hands
with Infosys to establish an offshore development centre (ODC).
Downside Risks
A longer-than-expected recession in the developed economies
A more-than-expected appreciation of the rupee vis--vis the dollar
A greater-than-anticipated wage inflation
Upside Risks
An earlier-than-expected economic recovery in the developed economies
Further depreciation of the rupee vis--vis the dollar
4 5 .0
4 8 .0
5 1 .0
5 4 .0
5 7 .0
Q
1'07
Q
2'07
Q
3'07
Q
4'07
Q
1'08
Q
2'08
Q
3'08
Q
4'08
Q
1'09
Q
2'09
Q
3'09
O
ffsho
re
C
ontribution
(%
2 0 .0
2 5 .0
3 0 .0
3 5 .0
4 0 .0
Fixed
p
rice
Projects
(%
)
O f f s h o r e C o n tr i b u ti o n F i x e d p r i c e P r o j e c ts
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8/8/2019 India Bulls Infosys 20Jan09
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Please see the end of the report for disclaimer and disclosures. -4-
INFOSYS TECHNOLOGIES LTD
RESEARCH
EQUITY RESEARCH January 16, 2009
A less-than-anticipated wage inflation
Company Guidance and Our View
For FY09, Infosys has again reduced its revenue guidance approximately by
2% to 11.8%12.8% (USD 4.674.71 bn) in USD terms. We expect revenue
growth to remain around 12.1% for FY09 as deal ramp-ups decelerate. In
INR terms, Infosys has given an EPS guidance of Rs. 102.9 for FY09
However, we do not expect the Company to meet this target due to sustained
pricing pressure.
Outlook
We expect a weak operating performance from Infosys in the near term
because of the recession in the developed economies. Furthermore, we
expect billing to decrease by 24% per quarter in the next 34 quarters. Also
fewer client additions and slower ramp-ups are expected to lead to revenue
de-growth of 4.6% in FY10 in INR terms. However, we believe that Infosyss
strong brand equity, end-to-end delivery capabilities, and corporate
governance standards will ensure growth in the medium-to-long term.
Valuation
Our DCF valuation suggests a fair value of Rs. 1,325, assuming an 8% Rf, a
13.36% WACC, and a 5% terminal growth. While the stock has limited
downside risks, the near-term upside appears limited due to the expected
weakness in IT spending and the continuing recession in the developed
economies. Hence, we downgrade our rating on the stock to Hold.Key Figures (Consolidated)
Year to March FY06 FY07 FY08 FY09E FY10E FY11E AGR (%
(Figures in Rs. mn, except per share data) (FY08-11E
Net Sales 95,210 138,930 166,920 215,343 205,524 221,976 10.0%EBITDA 30,910 43,910 52,380 69,511 51,549 51,341 -0.7%
Net Profit 24,580 38,500 46,590 58,904 49,235 54,223 5.2%
Margins(%)
EBITDA 32.5% 31.6% 31.4% 32.3% 25.1% 23.1%
NPM 25.8% 27.7% 27.9% 27.4% 24.0% 24.4%
Per Share Data (Rs.)
EPS 43.8 67.6 81.3 102.7 85.9 94.6 5.2%
PER (x) 68.1x 29.8x 17.6x 12.3x 14.8x 13.4x
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8/8/2019 India Bulls Infosys 20Jan09
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Indiabulls (H.O.), Plot No- 448-451, Udyog Vihar, Phase - V, Gurgaon - 122 001, Haryana. Ph: (0124) 3989555, 3989666
5
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INFOSYS TECHNOLOGIES LTD
RESEARCH
EQUITY RESEARCH January 16, 2009
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