Infosys Jun’17 quarter results are better on reported basis with a constant currency revenue growth of 2.7% qoq. Volumes were inline with a growth of 1.7% but pricing surprised positively with a realisation improvement of about 130bps in the quarter (Pricing on average has declined 150bps in last three fiscal). EBIT margins declined marginally by 50bps qoq at 24.1%. We believe that though the numbers are better than expected on reported basis we do not see any major positives on annual basis as there has been no uptick on cc guidance despite better performance which indicates that the pricing gains are not sustainable and profitability would see downtick in coming quarter on lower sequential growth, wage hikes (effective July’17) and INR appreciation.
We currently have a ACCUMULATE rating on Infosys with a TP of Rs 1,000. At CMP of Rs 977, stock trades at 14.7x/13.3x FY18/19E P/E. We will review our earnings estimates post conference call at 11.30am IST (Dial in No 3938 1098).
Jun’17 quarter results highlights
- Revenues at US$ 2,651mn (3.2% QoQ, 6% YoY and 2.7% QoQ in constant currency terms) were ahead of Emkay as well as street estimates aided by positive pricing surprise. Pricing increased by 1.3% QoQ (in cc terms) after weak trend seen through last 3 years while IT Services volume increased by 1.7% QoQ.
- EBIT margins at 24.1% declined by 50 bps QoQ ahead of our expectation and consensus expectation of ~23.8%.
- Profits at Rs34bn (-3.3% QoQ, +1.4% YoY) were impacted by exceptional costs of Rs710mn relating to write down off investments in associate company Nova LLC.
- Revenue guidance is unchanged at 6.5-8.5% YoY revenue growth in cc terms. Besides, company holds on to its near term EBIT margin range of 23-25%.
Operating metrics performance at a glance
Volumes
- Volumes (IT Services): 1.7%QoQ and 7.1%YoY.
- Utilization without trainees: 84%, up 200bps QoQ.
- Utilization with trainees: 80.2%, up 200bps QoQ.
Growth by Verticals (all in constant currency terms)
- Financial Services: 2.0%QoQ
- Manufacturing: 1.5%QoQ
- Retail: 2.6QoQ
- ECS: 4.9% QoQ
Growth by Geographies (all in constant currency terms)
- US: 1.3%QoQ
- Europe: 3.1 %QoQ
- ROW: 6.9% QoQ
- India: 11.2% QoQ
Infosys: Jun’17 quarter result summary
|
In Rs mn
|
Q1FY18A
|
Q4FY17
|
QoQ(%)
|
Q1FY17
|
YoY(%)
|
Q1FY18E
|
|
Net sales (US$ Mn)
|
2,651
|
2,569
|
3.2%
|
2,501
|
6.0%
|
2,626
|
|
Net sales (Rs, Mn)
|
1,70,780
|
1,71,200
|
-0.2%
|
1,67,820
|
1.8%
|
1,69,391
|
|
Operating expenses
|
1,29,670
|
1,29,080
|
1,27,350
|
1,24,608
|
||
|
EBIT
|
41,110
|
42,120
|
-2.4%
|
40,470
|
1.6%
|
40,272
|
|
Margins (%)
|
24.1
|
24.6
|
(53)
|
24.1
|
23.8
|
|
|
Other income
|
8140
|
7210
|
7510
|
8,500
|
||
|
Pre-tax profit
|
49,250
|
49,330
|
-0.2%
|
47,980
|
2.6%
|
48,772
|
|
Tax provided
|
13710
|
13300
|
13620
|
14,144
|
||
|
Profit after tax
|
35,540
|
36,030
|
34,360
|
3.4%
|
34,628
|
|
|
Extraordinary item
|
-710
|
0
|
0
|
0
|
||
|
Emkay Net profit
|
34,830
|
36,030
|
-3.3%
|
34,360
|
1.4%
|
34,628
|
|
EPS, Rs
|
15.2
|
15.8
|
|
15.0
|
|
15.1
|