Technology

Infosys’ numbers for 1QFY2017 have come in lower than our expectations. Its
revenues grew 2.2% on a sequential basis to US$2,501mn (V/s US$2,548mn
expected); the growth was mostly volume led. In INR terms, revenues came in at
`16,782cr (V/s `17,072cr expected), up 1.4% qoq. In constant currency (CC)
terms, sales grew 1.7% qoq. On the operating front, the EBDITA and EBIT
margins dipped by ~121bp qoq and ~140bp qoq to 26.5% and 24.1%
respectively. Consequently, the PAT de-grew by 4.5% qoq to `3,436cr (V/s
`3,514cr expected). The FY2017 revenue guidance has been revised to 10.5%-
12.0% in CC terms. We maintain our Buy rating on the stock with a target price
of `1,370.
Quarterly highlights: The company’s revenues for the quarter grew 2.2% on a
sequential basis to US$2,501mn (V/s US$2,548mn expected) with the growth
mostly being led by volumes. In INR terms, revenues came in at `16,782cr (V/s
`17,072cr expected), up 1.4% qoq. In CC terms, sales grew 1.7% qoq. In terms
of geographies, USA, Europe, and RoW posted a CC qoq growth of 2.4%,
(0.3)%, and 4.9% respectively, while India dipped by 8.2% qoq on a CC basis
during the quarter. In terms of verticals, FSI posted a CC qoq growth of 1.7%,
and Manufacturing & Hi-Tech posted a CC qoq growth of 2.4%. On the
operating front, the EBDITA and EBIT margins dipped by ~121bp qoq and
~140bp qoq to 26.5% and 24.1% respectively. Consequently, the PAT de-grew
by 4.5% qoq to `3,436cr (V/s `3,514cr expected).
Outlook and valuation: Following a soft start to the year, Infosys cut its FY2017
revenue growth guidance to 10.5-12.0% in CC terms from 11.5-13.5% earlier.
This implies an ask rate of 3.1%-4.1% for the remainder of the year. It gave a
guidance of achieving sales of US$20bn by FY2020. We maintain our Buy rating
on the stock.

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