September 19, 2025
28bse3-150x1502
SBICaps brings to you the attached 1QF13 result review on Infosys Ltd provided by its Research Team for your perusal
SBICaps brings to you the attached 1QF13 result review on Infosys Ltd provided by its Research Team for your perusal

Infosys 1QF13 Result Review I TP: Rs2,650 I Rating: ADD

Misses on multiple fronts, valuations give comfort

Infosys reported revenues lower by 1.1% QoQ of US$1,752mn for 1QF13 (US$1,763mn in constant currency), below SSLe of US$1,771mn and also missed the lower-end of its guidance for the second consecutive quarter. The company has taken a one-off hit due to a writeoff of accrual revenues worth US$15mn because of the cancellation of a transformation project of a European client in the E&U vertical this quarter. Volumes grew 2.7% QoQ. Reported realisation de-grew 3.7% QoQ (de-grew 3.2% in cc). Despite sharp rupee depreciation QoQ, EBIT margins declined ~190bps QoQ due to declines in realisations and utilisation, onsite hiring and visa costs. The company has discontinued its quarterly guidance for the time-being and lowered its F13 revenue growth guidance to 5% (vs. earlier 8-10%).

EBIT margins decline as realisations take a hit: Despite sharp rupee depreciation , operating margins declined ~190bps qoq on account of decline in realisation (3.7% QoQ), drop in utilisation (120bps QoQ), onsite hiring (~700 employees) and visa costs (~60bps impact). The company hinted at sporadic pricing re-negotiations, largely from the BFSI vertical. However, the management maintained a stable pricing outlook.

Despite reducing guidance, questions marks remain: The F13 guidance of at least 5% growth implies CQGR of ~3.1% over 2Q-4Q and a volume growth of ~9% YoY, taking into account a sharp pricing decline in 1Q. The company has gone ahead with ~20,000 promotions and progressions w.e.f. 1st Jul, and the decision to forego wage hikes may be revisited in Sep / Oct. Challenges such as lack of visibility in spending, decline in velocity of decision-making and uncertainties contributed by some ramp-downs, slower ramp-ups and higher scrutiny in long-term investments and transformational / discretionary projects remain.

Valuation: The deteriorating prospects of top-line growth in F13 have been a result of softness in discretionary spending, slow ramp-ups and even ramp-downs in certain projects, and now pricing declines as well. We are revising our EPS estimate for F13e/F14e by -0.8/-1.0% to Rs164.9/176.5, owing to (a) 1QF13 results, (b) decline in realisations, (c) lower US dollar revenue expectations and (d) weaker Rupee assumptions. Considering reasonable valuations, we maintain an ADD recommendation with a target price of Rs2,650 at 15x (earlier 16x) F14e earnings.

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