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Infosys Technologies

Infosys Technologies - Results Update.

Excellent quarter : revenue growth highest in the past nine quarters.
Infosys’ 3QFY10 performance was significantly better than street expectations. Revenues grew 6.7% qoq to US$1,232 mn, highest in the past nine quarters. Consistent with market expectations, BFSI vertical revenue led revenue growth and up 10.3% qoq. Operating margin increased 90 bps qoq to 35.5%, led partly by write-back of provisions. Net income of Rs15.82 bn was ahead of expectations by 5.7% and led by better-than-expected revenue and OPM performance.

4QFY10E revenue guidance muted and extremely conservative.
Infosys has guided for 1.5% US$ growth for 4QFY10 (1% at the upper-end excluding McCamish acquisition). The guidance is excessively conservative , even after accounting for the adverse impact of seasonality. 4QFY10 EPS guidance of Rs25.83 (-8.3% qoq) assumes 150 bps decline in margin. Infosys has raised FY2010E EPS guidance to Rs107, versus Rs100 earlier.

Infosys has managed the fine balance between growth and profitability well thus far. The company continues to make the investments required to keep the growth engine running and retain its premium positioning among offshore players—some of the recent change to delivery organization (iRace) and non-linearity (IP marketing as well as development) may truly be game changing initiatives. Hence longterm investors can accumulate on declines with a price target of Rs3,000.