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Infosys: Defying slowdown - Views on News from Equitymaster
 
 
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  • Oct 10, 2002

    Infosys: Defying slowdown

    Tech major Infosys has beaten expectations on topline growth. The company has posted a steep 15% sequential growth in revenues for 2QFY03. However, this has not translated into bottomline growth. The net profits have grown 4% sequentially. This is due to significant decline in other income and a write off of Rs 238 m towards investments. Had the write off not been made net profits would have increased by 15% sequentially. On a YoY basis, revenues are up by 35%, while net profits have grown by 12%. Excluding the write off net profits have grown by 24% YoY.

    (Rs m) 1QFY03 2QFY03 Change 1HFY02 1HFY03 Change
    Sales 7,646 8,796 15.0% 12,627 16,442 30.2%
    Other Income 249 175 -29.6% 282 424 50.7%
    Expenditure 4,897 5,563 13.6% 7,632 10,460 37.1%
    Operating Profit (EBDIT) 2,749 3,232 17.6% 4,994 5,982 19.8%
    Operating Profit Margin (%) 36.0% 36.7% 39.6% 36.4%
    Interest - -
    Depreciation 405 462 14.2% 745 867 16.4%
    Profit before Tax 2,594 2,945 13.6% 4,531 5,539 22.2%
    Extra-ordinary income/(expense) - (238) (238)
    Tax 425 450 5.9% 615 875 42.3%
    Profit after Tax/(Loss) 2,169 2,258 4.1% 3,916 4,426 13.0%
    Net profit margin (%) 28.4% 25.7% 31.0% 26.9%
    Diluted number of shares 66.1 66.1 66.1 66.1
    Diluted Earnings per share* 131.2 136.6 118.5 133.9
    P/E (x) 25.8 26.2
    *(annualised)

    The topline grew by 16% in dollar terms. Of this, 12% growth came from volumes. The remaining 4% was due to hike in billing rates. The performance is brilliant considering the weak business environment.

    QoQ Growth 1QFY02 2QFY02 3QFY02 4QFY02 1QFY03 2QFY03
    Volume 10.9% 2.6% 3.4% 6.3% 12.5% 11.7%
    Price (Billing rates) -2.8% 2.6% -3.2% -4.8% -0.6% 4.40%

    Infosys has once again shown why it is cut above the rest. Even in this difficult environment the company managed to improve operating margins. The operating margins were higher by 0.7% compared 1QFY03. While the company spent more on marketing it cut down on its administrative costs and software development expenses.

    Expenses (Rs m) 1QFY03 2QFY03 Change
    Software development expenses 3,774 4,245 12.5%
    % of sales 49.4% 48.3%
    Selling and marketing expenses 551 693 25.8%
    % of sales 7.2% 7.9%
    General and administration costs 572 625 9.3%
    % of sales 7.5% 7.1%
    Total expenses 4,897 5,563 13.6%
    % of sales 64.0% 63.3%
    Operating margin 36.0% 36.7%

    While the company has not changed itís net profit guidance, it has raised the revenue guidance. Earlier Infosys had indicated of a 19% to 23% growth in revenues. However, now it expects revenues to grow in the range of 32% to 33%. The net profits are expected to grow in the range of 16% to 19% in FY02.

    At the current market price of Rs 3,530 the stock is trading at a P/E multiple of 24x its FY03 estimated earnings. Considering the performance, the valuations look attractive from a long-term perspective (three to five years). The management has indicated a weak net profit growth as compared to the revenue growth. However, for 2QFY02 the company not only managed to hold on, but actually improved operating margins. Therefore, unless there are more write offs going forward, the growth in bottomline could be much more than what the management has indicated.

     

     

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