Hold Infosys; target price Rs 1100, say Emkay Research

Last Updated: Fri, Oct 14, 2016 13:28 hrs
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The Infosys September 2016 quarter revenues are in line and supported by the India business but the guidance cut is more than expected, say Emkay Research.

This is their full note on the Infy results:


September quarter revenues at US$ 2587 million was ahead of consensus expectations on growth (+2.5% QoQ) and in line with our estimates (+3.3% QoQ). However we note that the revenue performance is supported by ~29% QoQ growth in India ( adjusted for this , International revenue growth at 2.7% QoQ is similar to the growth seen in June'16 quarter and much lower than the 5.9% QoQ growth seen in Sep'15 quarter)

EBIT margins have surprised positively with an 80 bps sequential improvement, akin to the positive surprise at TCS. This is driven by However Infosys has revised its FY17 revenue guidance to 8-9% constant currency revenue growth (+7.5-8.5% YoY US$ revenue growth based on Sep 30'2016 exchange rates) which implies a very weak H2FY17 (0-0.7% QoQ growth at lower /upper end respectively)

We see cuts to revenue estimates for Infosys although EPS estimates may remain broadly unchanged. Our current FY17/18E EPS are at Rs 61/68 respectively. We currently have a HOLD rating on Infosys with a TP of Rs 1,100.

Sep'16 quarter results highlights

  • Revenues at US$ 2,587 mn (+3.4% QoQ, +8.2% YoY) is line with our estimates of 3.3% QoQ US$ revenue growth (Consensus estimates of 2.5 %). IT Services volume growth at 4% QoQ (with onsite volumes up 3.1% QoQ and offshore volumes growing by 4.4% QoQ).

  • EBIT margins improved by 80 bps QoQ to 25.9% ahead of our expectations of 25.5%

  • Profits at Rs 36.1 bn (+4.9% QoQ) ahead of expectations aided both by higher than expected margins and other income.

  • Quarterly Annualized attrition has declined by 100 bps QoQ to 20%, although is still high.

Operating metrics performance at a glance


  • Volumes (IT Services): 4%QQ and 12.2%YoY.
  • Utilization without trainees: 82.5 %, up 200 bps QoQ.
  • Utilization with trainees: 77.7%, up 120 bps QoQ.

Growth by Verticals (all in constant currency terms)

  • Financial Services: +5.2%QoQ
  • Manufacturing: 2.1%QoQ
  • Retail: 1.2%QoQ
  • ECS: +7.3% QoQ

Growth by Geographies (all in constant currency terms)

  • US: +2.7%QoQ
  • Europe: +3.7%QoQ
  • ROW: +5.2% QoQ
  • India: 28.7% QoQ

Growth by client metrics

  • Top 1: 0.6 %QoQ
  • Top 5: -1.1%QoQ
  • Top 10 : +1.6% QoQ
  • Non Top 10: +4% QoQ

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