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Infy Up 17% on "Good" Results. How Good?


Infosys declared results on Friday and the stock went up substantially. It has in fact been the best single day move for the stock and the best result day by far. The 17% move came on the back of what was seen to be excellent results, or at least, for the first time in a while, Infosys looking less negative about its future.


Let’s do a quick note about the results, as usual, in graphs. Quarterly revenues went up beyond Rs. 10,000 cr. for the first time,


Revenues have gone up nearly 6% QoQ, and about 10% YoY. I’m not very sure of how the accounting has been done, but for partially completed fixed price projects and invoiced-but-not-yet-paid contracts they consider the end-quarter exchange rate to convert the outstanding earnings into rupees. The RBI rates for the rupee to the dollar were:

Sep 30, 2012: 52.6970

Dec 31, 2012: 54.7773

The rupee stumbled about 3.95%, which has perhaps contributed substantially to the gain in revenues. (Note though that Infy has around 30-40% of revenues hedged, but the hedge losses may not be recorded in "revenues" necessarily)

P/E and EPS Growth

A more generic view of the growth is here:


While the P/E seems to have got back up to 16.64 due to the stock price jump, earnings growth has reversed direction. Not only is the December quarter EPS marginally lower than the same quarter in the previous year (meaning "no growth"), even the TTM EPS growth – which was about 29% in the last quarter and come to 20% (most of which, again, is the rupee depreciation).


The area of concern is in the slowing of headcount growth.


At a 150,000+ employee count, the growth in number of employees is an abysmal 1.21% this quarter. (Net Addition = New employees minus attrition as a % of total employee count). Since the utilization is just getting worse every quarter, lower employee growth + stagnant productivity = either higher billing rates or a better dollar-rupee ratio.

Billing rates have actually come down marginally from last year or are stagnant ($4500 to 4800 per month for offshore work, $12500=$12900 p.m. for onsite work). So the increase in revenues is not really due to higher productivity or more employee headcount – it is a small tweak in billing rates, accompanied with a great rupee-dollar equation. Not very confidence inspiring, for a company who doesn’t really do innovative work or use the leverage associated with product companies like Google or Apple.

Geographically Speaking

Infosys is becoming slowly lesser and lesser dependent on the US. Even work from India is getting lesser. Cognizant and TCS seem to be really competing in the US. Europe is decent due to a quasi recovery that will go back to dismal times once the usual suspects of PIIGS repeat their demands.


My Take

I’m not interested in Infy as a stock to buy. I just like doing these graphs. Stock’s not a buy for me, and with the strength, not a sell either. At this stage this company needs to trade at a P/E of 10-12, given its prospects and lack of innovation. However the technicals might still show a buy beyond 3,100, if it goes there.


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