12 October 2011
2QFY12 Results Update | Sector: Technology
Infosys Technologies
BSE SENSEX
S&P CNX
16,958
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
5,099
INFO IN
571.2
3,494/2,169
19/-5/4
1,531.0
31.3
CMP: INR2,681
TP: INR3,170
Buy
Infosys Technologies (INFO) posted strong volume growth in 2QFY12 (4.4% QoQ against our expectation of 3.7%)
with no cut in volume or pricing assumptions in its FY12 USD revenue growth guidance (17.1-19.1% v/s 18-20%
earlier, the change being driven by cross currency fluctuations). This lays to rest concerns over volume growth for the
year - a positive surprise for the street.
Change in the company's rupee EPS guidance (INR143.02-145.26 v/s INR128.2-130.1 earlier, 11.6% increase at the
upper end) was driven by a weaker rupee assumption of INR49 to the US dollar. We keep our USD revenue growth
estimates unchanged and factor in an average rupee/US dollar exchange rate of INR47.1 (v/s INR45 earlier) for FY12
and INR46 (v/s INR45 earlier) for FY13. Our revised EPS estimates are INR143.6 (v/s INR133.7 earlier) and INR158.6
(v/s INR152.5 earlier) for FY12 and FY13 respectively. 1% change in INR/USD impacts our EPS by 1.6%.
Change in currency assumptions in favor of a weaker rupee across the street is likely to make the stock/stocks in
the sector more susceptible to currency volatility.
Our core thesis remains intact: (i) Post restructuring INFO will be able to operate at higher utilization (78-82%, ex-
trainees), which was reiterated by the management. INFO's current utilization (ex-trainees) is 77.3%, leaving room
for a 470bp increase. (ii) INFO can maintain pricing with a focus on higher value businesses like consulting/PI and
products/platforms. Realization in 2QFY12 was up 100bp (constant currency). (iii) Narrowing differential in growth
rates v/s TCS will be visible over the next two quarters. INFO grew its telecom vertical after three successive quarters
of declines (excluding revenue declines from a large telco client, INFO's growth is not very different from TCS).
Reiterate
Buy
with a target price of INR3,170 (v/s INR3,050 earlier) implying an 18% upside.
Nitin Padmanabhan
(Nitin.Padmanabhan@MotilalOswal.com); Tel: +91 22 3982 5426
Ashish Chopra
(Ashish.Chopra@MotilalOswal.com); Tel: 3982 5424

Infosys Technologies
Volume, realizations, margin performance ahead of estimates
Infosys Technologies (INFO) reported volume growth of 4.4% (against our estimate of
3.7%) driven by the business operations segment, which accounted for 60% of INFO's
business, and contributed 81% to INFO's QoQ incremental revenue addition of USD75m.
We were earlier concerned about INFO not being able to drive growth for this business,
however the company has steadily been able to grow this business along with its continued
focus on consulting and package implementation over the past five quarters. The quality
of revenue during the quarter was also good with application development, testing and
consulting and package implementation contributing 83% to INFO's QoQ incremental
revenue addition and less of it being driven by application maintenance. INFO also reported
an offshore shift of 80bp in 2QFY12 after three consecutive quarters in favor of onsite.
Business operations: Contribution to incremental
revenue improves
Contribution to incremental revenues
Revenue contribution
61%
60%
60%
60%
61%
81%
41%
40%
50%
60%
Offshore shift after three consecutive quarters in favor
of onsite
Offshore
56%
52%
48%
44%
40%
Onsite
Source: Company/MOSL
Realizations were up 100bp (in terms of constant currency) and up 50bp (local currency)
in 2QFY12, despite a higher proportion of revenue coming from business operations and
an offshore shift. The management indicated that this was driven by non-linear revenue.
INFO reported five consecutive quarters of increase in realizations.
Fifth consecutive quarter of increase in realizations
2.5%
1.4%
0.2%
0.5%
2.5%
1.2% 0.5%
-0.9% -1.1%
-1.8%
-2.1%
-0.7% -0.6%
Source: Company/MOSL
12 October 2011
2

Infosys Technologies
INFO reported a 210bp improvement in EBIT margins in 2QFY12 (against our expectation
of 100bp). The improvement in margins was driven by (i) a 50bp increase in realizations
(in local currency), (ii) an 80bp offshore shift and (iii) the rupee being weaker by 2.2% in
2QFY12 compared with our estimates.
EBIT margin trends: Up 210bp QoQ, above our estimate of 100bp
EBIT margin - %
31.9
29.8
27.0
29.5
30.1
30.5
31.5
30.3
28.3
30.2
30.2
29.0
26.1
28.2
Source: Company/MOSL
Revising estimates to factor in a weaker rupee
We factor in INR49 to the US dollar in 3QFY12, INR48/USD in 4QFY12 and appreciate
the currency by 1.7% QoQ to an average of INR46/USD in FY13.
We are not changing our US dollar revenue growth assumptions for FY12 or FY13 as our
core thesis remains intact.
The street is likely to model a weaker rupee in FY12 and FY13. This is likely to increase
the susceptibility of the INFO stock price and that of other IT stocks to the volatility of the
rupee.
Change in estimates
Revised
FY12E
Avg INR/USD
Revenue - USD m
YoY Growth (%)
EBITDA - INR m
EBITDA Margin (%)
PAT - INR m
YoY Growth (%)
EPS - INR
47.1
7,167
18.6
105,716
32.6
82,074
20.3
143.6
FY13E
46.0
8,208
14.5
117,395
31.3
90,618
10.4
158.6
FY12E
45.0
7,164
18.6
98,879
30.6
76,399
Earlier
FY13E
45.0
8,217
14.7
112,791
30.5
87,157
12.0
14.1
133.7
152.5
Source: Company/MOSL
12 October 2011
3

Infosys Technologies
EPS Sensitivity Table
INR/USD
44.1
44.6
45.0
45.5
46.0
46.4
46.8
47.3
47.7
48.2
48.6
49.1
TCS
FY12E
FY13E
51.9
52.3
52.8
53.2
53.7
54.1
54.6
55.0
55.5
55.9
56.4
56.8
56.5
57.6
58.6
59.6
60.7
61.7
62.7
63.8
64.8
65.8
66.9
67.9
68.9
70.0
1.7%
Infosys
FY12E
FY13E
131.6
132.6
133.7
134.8
135.8
136.9
138.0
139.1
140.1
141.2
142.3
143.3
144.4
145.5
147.7
150.1
152.5
155.0
158.6
159.8
162.2
164.6
167.1
169.5
171.9
174.3
176.7
179.2
1.6%
Wipro
FY12E
FY13E
22.1
22.4
22.6
22.8
23.1
23.3
23.5
23.8
24.0
24.2
24.5
24.7
24.9
25.2
23.7
24.1
24.6
25.1
25.6
26.1
26.6
27.1
27.6
28.1
28.6
29.1
29.6
30.0
2.0%
HCL Tech
FY12E FY13E
28.2
28.8
29.3
29.8
30.4
30.9
31.4
32.0
32.5
33.0
33.6
34.1
34.6
35.2
33.2
34.1
34.9
35.8
36.6
37.5
38.3
39.2
40.0
40.9
41.7
42.6
43.4
44.3
2.4%
49.5
57.3
50.0
57.7
EPS Sensitivity to 1% Chg
* Sensitivity in FY12 assumes the INR for the remaining two quarters
Source: Company/MOSL
Core thesis intact
Our thesis of INFO benefiting post restructuring by being able to operate at higher utilization
levels of 78-82% (excluding trainees) was reiterated by the management. Moreover INFO's
current utilization (excluding trainees) is 77.3%, leaving room for a 470bp increase in
utilization. INFO made 23,500 campus offers for FY13 v/s 33,000 for FY12. This is in line
with our view that INFO would be better placed than its peers to reduce hiring and maintain
margins in anticipation of a weaker FY13.
INFO has the ability to maintain pricing with a focus on higher value businesses like
consulting/package implementation and products/platforms. The company already has
platform deals worth USD200m in TCV with 20 clients (average TCV of USD10m per
client) and added 10 more clients in 2QFY12. INFO improved its realizations by 100bp on
a constant currency basis in 2QFY12.
The narrowing of growth rate differential compared with TCS will be visible over the next
two quarters. INFO posted growth in the telecom vertical after three successive quarters
of declines (excluding revenue declines from a large client, INFO's growth is not very
different from TCS' growth).
Reiterate Buy, target price INR3,170 (INR3,050 earlier); 18% upside
The stock trades at 18.7x FY12E and 16.9x FY13E earnings. We reiterate
Buy
with a
target price of INR3,170 (against INR3,050 earlier), which discounts our FY13E EPS of
INR158.6 by 20x, implying an 18% upside.
Other result highlights
INFO added 45 clients in 2QFY12, the highest over the past five quarters.
Outstanding hedges were USD742m v/s USD745m in 1QFY12. Hedging policy is
unchanged as INFO continues to cover two quarters forward of net inflows.
Contribution of fixed price contracts to revenue declined 140bp QoQ to 37.7%.
12 October 2011
4

Infosys Technologies
Active clients at the end of the quarter increased by 19 to 647.
LTM attrition rate was 15.6%. While there was a marginal reduction sequentially in
the number of exits, the quarterly annualized attrition rate was above 20%.
DSO days came down to 61 from 63 in 1QFY12.
29% of INFO's revenue is from SEZs. INFO's guidance for the full-year tax rate is
28-28.5%.
Business operations and Consulting & SI drive growth during the quarter
Incremental Revenue
Business operations
- Application Development
- Application Maintenance
- Infrastructure Management Services
- Testing Services
- Business Process Management
- Others
Consulting & system integration
- Consulting & Package Implementation
- Systems Integration
- Others
Products platforms & solutions
- Products
- Product Engineering Services
- Others
Total
1QFY12 (USDm)
60.7
29.5
4.5
2.7
17.8
4.1
2.1
15.0
10.2
-0.5
5.4
-0.8
-6.9
5.9
0.2
75.0
Contrib. to Incre. Rev %
81
39
6
4
24
5
3
20
14
-1
7
-1
-9
8
0
100
Source: Company/MOSL
Broadbased growth across verticals
Incremental Revenue
Banking & Financial Services
Insurance
Manufacturing
Retail & CPG
Transport & Logistics
Life Sciences
Healthcare
Energy & Utilities
Communication and Services
Others
Total
1QFY12 (USDm)
22.8
2.0
13.5
3.3
-0.4
4.5
13.0
4.3
4.5
7.5
75.0
Contrib. to Incre. Rev %
30
3
18
4
-1
6
17
6
6
10
100
Source: Company/MOSL
12 October 2011
5

Infosys Technologies
Infosys Technologies: an investment profile
Company description
INFO is the second largest IT services company in India
with revenue of about USD6.6b (LTM) and employing over
141,000 people. INFO defines designs and delivers IT
enabled business solutions that help many Global 2,000
companies to win in a flat world. INFO has a global footprint
in 23 countries and development centers in India, China,
Australia, the UK, Canada and Japan. INFO's service
offerings span business and technology consulting, ADM,
SI, product engineering, IT infrastructure services and BPO.
Key investment arguments
Most profitable company among front-line Indian IT
companies.
Wide services offering profile and deep domain depth.
Key investment risks
Appreciation of the rupee could hamper profitability.
FY12 margin decline higher than expectations.
Recent developments
The company won three transformational deals and three
large deals in 2QFY12.
INFO bagged five strategic wins with large global
enterprises for its iEngage platform.
Valuation and view
Revenue and EPS CAGR of 16.6% and 15.2%
respectively, over FY11-13.
Valuations at 18.7x FY12E and 16.9x FY13E.
Maintain
Buy
with a target price of INR3,170, based
on 20x FY13E earnings.
Sector view
Over the past few months, increasingly weak macro
economic data has been emanating from the US and
Europe, which implies deceleration in growth for Indian
IT Services.
While CY12 budgets are yet to be hinted at, we expect
growth moderation across the sector, resulting from a
possible 3-4% cut in budgets as happened in 2003 (v/s
6-8% in CY08).
We reckon front line Indian IT companies would be
better placed to sail through the near term adversities
mentioned above. Niche IT/ITeS services companies
with strong business models are also likely to be better
placed to face uncertainties in near term.
EPS: MOSL forecast v/s Consensus (INR)
Infosys
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY12E
FY13E
FY12E
FY13E
FY12E
FY13E
FY12E
FY13E
18.7
16.9
4.7
4.1
3.9
3.4
12.5
10.8
Comparative valuations
TCS
20.4
18.4
6.5
5.4
4.4
3.7
15.1
13.2
Wipro
15.5
14.2
3.0
2.5
2.1
1.8
10.8
9.5
FY12
FY13
MOSL
Forecast
143.6
158.6
Consensus
Forecast
136.2
159.5
Variation
(%)
5.4
-0.6
Target price and recommendation
Current
Price (INR)
2,681
Target
Price (INR)
3,170
Upside
(%)
18.2
Reco.
Buy
Stock performance (1 year)
Infosys
3,600
3,200
Sensex - Rebased
Shareholding Pattern (%)
Jun-11
Promoter
Domestic Inst
Foreign
Others
16.0
9.8
52.4
21.7
Mar-11
16.0
9.0
54.6
20.4
Jun-10
16.1
8.2
55.3
20.5
2,800
2,400
2,000
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
12 October 2011
6

Infosys Technologies
Financials and Valuations
12 October 2011
7

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