Infosys shares surged 15 per cent after India's second largest IT outsourcer beat June quarter earnings estimates. Infosys was the biggest gainer on the Sensex and Nifty benchmarks and single handedly drove the markets higher.
Here are 10 factors driving the stock:
1. Topline beat: Infosys Q1 sales rose nearly 8 per cent quarter-on-quarter to Rs. 11,267 crore against estimates of 5-6 per cent growth. The big beat, however, was the 2.7 per cent sequential jump in dollar sales against estimates of flat (0 to 1 per cent) growth. Hitesh Shah of IDFC Securities told NDTV that revenue growth was pretty encouraging considering that slowing growth was the biggest concern for Infosys. (Track stock)
2. In constant currency, Infosys' revenue rose 3.4 per cent, much higher than Street estimates of 1.3 per cent growth.
3. Infosys reported volume growth (increase in man-hours billed) of 3.4 per cent against 1.8 per cent sequential growth in the March quarter. Volume growth in the IT services grew by 1.8 per cent. However, there was a sequential price decline of 0.7 per cent, suggesting continued pressure on pricing.
4. Profit beat: Infosys net profit declined 1 per cent q-o-q to Rs. 2,370 crore against estimates of Rs. 2,330 crore to Reuters poll. The company posted a 3.7 per cent year-on-year increase in its first-quarter net profit.
5. Operating margins for the first quarter grew at 23.5 per cent, same as last quarter, but higher than against Street estimates of 23.4 per cent despite some salary revisions kicking-in with effect from May 1. CFO Rajiv Bansal told NDTV that we did a fantastic job on the margins front. The positives were the rupee and the utilisations went up. (Utilisation is the ratio of the total manpower that is billed to total billable hours). However, Mr Bansal cautioned that going forward margins may fall by 300 basis points in the next quarter and 240 basis points for the full year on account of salary hikes.
6. Infosys retained its full year dollar sales guidance at 6-10 per cent. This comes as a big relief to investors, who were prepared for the worst after global investment bank Morgan Stanley, warned that Infosys may revise its guidance downwards earlier this month.
7. Infosys sales in North America, its biggest geography grew by 4.9 per cent sequentially. Among the frontline IT companies, Infosys has the biggest reliance on U.S. for revenues. Similarly, financial services, Infosys' biggest vertical, grew by 1.9 per cent sequentially. Infosys also won seven large deals in the first quarter; a few of them are over $100 million over 3-5 years.
8. Infosys management remained "cautiously optimistic" though chief executive S. D. Shibulal said "sentiment towards Infosys is very positive among clients." Mr Bansal said Infosys has done "reasonably well" in the first quarter. However, Mr Shibulal said regulatory challenges (read visa issues) remain.
9. Analysts bullish: Most experts said Infosys has posted impressive numbers in the first quarter. UBS said Infosys has beaten revenue, margins, and earnings forecasts (It has a target of Rs. 2,900). Nomura said Q1 numbers overall look very impressive. Domestic brokerage Kotak retained its "add" rating on Infosys on inexpensive valuations.
10. The Murthy effect: Sanjeev Hota of Sharekhan told NDTV that it's a good start for Infosys after NR Narayana Murthy coming in.