Sell Infosys On Rallies

Friday, April 11, 2008 | | |

Shahina Mukadam, IDBI Capital Market is of the view that one can book profits in Infosys Technologies on rallies

This quarter numbers of Infosys Technologies should be reasonably good. We are expecting a 22% growth YoY and I think on a sequential base is about 5%, which is not bad. If one see normally in the past the company has been giving a very conservative guidance and then outperforming. I think this time around it could be very much the opposite."

She further added, "The company is likely to come out with a reasonable guidance of maybe about 20%, which of course will be lower than what we have seen in the past but then going forward there are many critical issues like exchange rate, the slowdown in the US economy and especially the impact on the financial sector and increasing cost. So I think we have to really see how numbers will evolve over a period of time, valuations are 15 times at current price levels, it is not too expensive but I think there is limited upside going forward from here. So any rally should be used to book profits rather than continue to hold

Infosys Technologies is to announce its Q4 and FY08 numbers. According to CNBC-TV18 estimates, the company is expected to post net profit of Rs 1253.8 crore for the quarter ended March 2008 as against Rs 1231 crore in previous quarter.

Revenues are seen going up 6.1% to Rs 4527.4 crore versus Rs 4271 crore. EBIDTA is likely to go up at Rs 1483.4 crore versus Rs 1392 crore. Margins are seen at 32.8% versus 32.6%. EPS works out to be Rs 21.95.

Infosys Q4 Guidance was (Re terms)

Revenues at Rs 4477 – 4501 cr
Growth of 4.8% - 5.4% (expectations of 4-6%)
EPS at Rs 21.38; growth of 5.3%
Factors at play

1% depn in Re/$ to boost margins but would be negated by higher S&M expenses
Forex losses likely in the quarter; may partly offset gains from re depn
Margins to gain from Absence of one-time items reported in 3Q (overseas insurance provision of +170bps and California wage settlement of -240bps)
For FY08, the company is expected to post 20% growth in its revenues at Rs 16677.4 crore versus Rs 13893 crore. Net profit is seen up by 21.1% to Rs 4663.8 crore versus Rs 3850 crore. EPS works out to Rs 81.6.

FY08 Guidance was

Revenues at Rs 16627- 16651 cr
Growth of 19.7% -19.9%
EPS: 81.07; growth of 17.12%
Street expectations

Expectations of 18-20% dollar guidance for FY09 (15-16% rupee guidance)
FY09 EPS guidance likely in the Rs 90.5-91.5 range (but street still has Fy09 EPS targets at around Rs 95)
Q1 guidance expected around 0.5%- 1.5% QoQ in dollar terms (seasonally weak qtr)
Thumbs Up: Better margin assumptions in guidance
Thumbs Down: Jun08 volumes even worse than our assumptions (20-22% expected)