Infosys (ACCUMULATE, CMP Rs 977, and TP Rs 1,000) Jun’17 quarter results: operating performance ahead of estimates; sustenance of pricing critical to support profitability

Posted by: at 7/13/2017 10:25:00 pm
Infosys (ACCUMULATE, CMP Rs 977, and TP Rs 1,000) Jun’17 quarter results: operating performance ahead of estimates; sustenance of pricing critical to support profitability

Infosys Jun’17 quarter results are better on reported basis with a constant currency revenue growth of 2.7% qoq.  Volumes were inline with a growth of 1.7% but pricing surprised positively with a realisation improvement of about 130bps in the quarter (Pricing on average has declined 150bps in last three fiscal).  EBIT margins declined marginally by 50bps qoq at 24.1%.  We believe that though the numbers are better than expected on reported basis we do not see any major positives on annual basis as there has been no uptick on cc guidance despite better performance which indicates that the pricing gains are not sustainable and profitability would see downtick in coming quarter on lower sequential growth, wage hikes (effective July’17) and INR appreciation. 

We currently have a ACCUMULATE rating on Infosys with a TP of Rs 1,000. At CMP of Rs 977, stock trades at 14.7x/13.3x FY18/19E P/E. We will review our earnings estimates post conference call at 11.30am IST (Dial in No 3938 1098).


Jun’17 quarter results highlights

  • Revenues at US$ 2,651mn (3.2% QoQ, 6% YoY and 2.7% QoQ in constant currency terms) were ahead of Emkay as well as street estimates aided by positive pricing surprise. Pricing increased by 1.3% QoQ (in cc terms) after weak trend seen through last 3 years while IT Services volume increased by 1.7% QoQ.

  • EBIT margins at 24.1% declined by 50 bps QoQ ahead of our expectation and consensus expectation of ~23.8%.

  • Profits at Rs34bn (-3.3% QoQ, +1.4% YoY) were impacted by exceptional costs of Rs710mn relating to write down off investments in associate company Nova LLC.

  • Revenue guidance is unchanged at 6.5-8.5% YoY revenue growth in cc terms. Besides, company holds on to its near term EBIT margin range of 23-25%.


Operating metrics performance at a glance

Volumes
  • Volumes (IT Services): 1.7%QoQ and 7.1%YoY.  
  • Utilization without trainees: 84%, up 200bps QoQ.
  • Utilization with trainees: 80.2%, up 200bps QoQ.
Growth by Verticals (all in constant currency terms)
  • Financial Services: 2.0%QoQ
  • Manufacturing: 1.5%QoQ
  • Retail:  2.6QoQ  
  • ECS: 4.9% QoQ
Growth by Geographies (all in constant currency terms)
  • US: 1.3%QoQ
  • Europe: 3.1 %QoQ
  • ROW: 6.9% QoQ
  • India: 11.2% QoQ
Infosys: Jun’17 quarter result summary
In Rs mn
Q1FY18A
Q4FY17
QoQ(%)
Q1FY17
YoY(%)
Q1FY18E
Net sales (US$ Mn)
        2,651
        2,569
3.2%
        2,501
6.0%
        2,626
Net sales (Rs, Mn)
   1,70,780
   1,71,200
-0.2%
   1,67,820
1.8%
   1,69,391
Operating expenses
1,29,670
1,29,080
1,27,350
1,24,608
EBIT
      41,110
      42,120
-2.4%
      40,470
1.6%
      40,272
Margins (%)
24.1
24.6
            (53)
24.1
23.8
Other income
8140
7210
7510
8,500
Pre-tax profit
49,250
49,330
-0.2%
47,980
2.6%
48,772
Tax provided
13710
13300
13620
14,144
Profit after tax
35,540
36,030
34,360
3.4%
34,628
Extraordinary item
-710
0
0
0
Emkay Net profit
      34,830
      36,030
-3.3%
      34,360
1.4%
      34,628
EPS, Rs
15.2
15.8

15.0

15.1
Source: Company, Emkay Research


You May Also Like

Share Your Opinion