Infosys top line grew a modest 6.3% q-o-q to 45.4 billion, driven by a moderate increase in volumes. Due to the slowdown in the US economy, the Company might face problems in the near term, as several clients are delaying their budgets.
However, it has not seen any order cancellation and clients look likely to increase their off-shore budgets. Thus, we believe that top-line growth will continue to remain robust although there may be some jitters in the short term.
EBITDA margin remained flat at 32.5% as the increase in software development and selling & marketing expenses was offset by a decrease in the general and administrative expenses. Also, Infosys maintained its margin for FY08 at 31.4% despite a more than 11% rupee appreciation.
We have revised our FY09E gross employee addition to 25,000, based on the company’s initial guidance. Revenues have been revised upwards marginally by 0.5% to Rs209 billion, after accounting for rupee depreciation against the USD, the GBP, and the EUR.
At the current market price of Rs1,865.7, the stock is trading at a forward P/E of 19.1x and 14.9x for FY09E and FY10E, respectively. Based on DCF valuation, we have arrived at a target price of Rs1,961 for the next 9 months. We downgrade our rating to HOLD.