Infosys Q3 FY12 Results Analysis
Infosys came out with Q3 results for FY 2011-2012 and reported a 24.4% increase in its net profits and 14.8% growth in its sales Q-o-Q.
Summary of Q3 FY12 Results:
- Sales grew by 14.8% on the back of a 3.1% Q-o-Q growth in volumes. For the nine months ended December 2011, sales grew by 22.9% Y-o-Y.The depreciation of rupee helped for this growth.
- Operating margins are at 31.2% during the quarter as compared to 28.2% in the previous quarter (Q2 FY12).
- Net Profit grew by 24.4% Q-o-Q because of higher operating margins and other income.
- 49 new clients were added during the quarter taking the total number of active clients to 665.
Guidance for Full year FY12 :
- Infosys management has revised its full year guidance for FY12 and now expects dollar revenues to grow by 16.4% as against earlier guidance of 17 to 19%.
- In rupee terms, the management expects revenues to grow by around 24.6% as against earlier guidance of 21.8% to 24% and Earnings per Share to grow by 23.2% YoY as against earlier guidance of 19.7% to 21.6% YoY.
Analysis of results:
- The growth of 24.4% QoQ in net income is on account of the improved operating margins and higher other income.
- Effective tax rate was at 28.6% almost flat.
- Operating margins improved to 31.2% against 28.2% seen in the previous quarter on account of lower operating costs as percentage of sales and the movement in rupee exchange rate.
- Employee utilization rates declined to 69.9% as compared to 70.2% during the previous quarter. Infosys added 3,266 employees during the quarter.
- The growth in sales was driven by the growth across all of the company’s key segments.
- ‘Application Development and Maintenance’ (38.9% of total sales) witnessed a growth of 15.4% QoQ during the quarter.
- ‘Consulting & System Integration’ (30.6% of total sales) recorded a growth of 12.6% QoQ during the quarter.
- ‘Product Engineering Services’ and ‘Infrastructure Management’ segments recorded good performances as well with 21.6% QoQ and 20.7% QoQ growth in sales respectively.
- ‘Product Revenues’ segment recorded a growth of 30.1% QoQ in sales during the quarter.
- ‘Application Development and Maintenance’ (38.9% of total sales) witnessed a growth of 15.4% QoQ during the quarter.
What can we expect?
- At the current price of Rs 2,585, the stock is trading at a multiple of 14.8 times our estimated FY14 earnings.
- Infosys had a good quarter with a moderate growth in volume across all its key segments. However, with regards to the future, the management reiterated the concerns of the uncertain demand environment. Hence, the management has revised down its full year guidance for FY 2011-12
- The management has stated that the pricing is stable. The average billing rates were marginally higher for both offshore and onsite services as compared to the previous quarter.
- The management has stated that they would be looking at high quality revenue growth with focus on increasing non-linearity in business. For that the management would continue to concentrate on ‘Products, Platforms and Solutions’ and ‘Consulting and System Integration’ business.
- BUY Infosys at current level with 2 to 3 year perspective to get good returns (of around at least 16 to 19 % annual returns) in long term.
