IIFL has recommended a reduce rating on Infosys Technologies with a price target of Rs 1200 in its April 16, 2009 research report.

“While FY10 revenue guidance was inline with our estimate (USD -6.7% to -
3.1% YoY), 1QFY10 guidance (USD revenues -3.7% to -5.4% QoQ and INR PAT of -16% QoQ) came in as a negative surprise. We believe after two quarters of missing guidance, management is conservative and could be building considerable buffers in its guidance. On the other hand, assuming no decline in pricing for FY10 is aggressive in our view. We expect a further 5% deterioration in pricing as they occur across a broader set of clients. Also, our channel checks indicate recurring price cuts with certain clients.”

“We expect Infosys recent underperformance (vs peers) to continue as growth expectations get realigned post its annual results and guidance. Guidance was below estimates with a 300bps decline in FY10 margins, which is in contrast to management commentary earlier. Pricing has now dropped by 4% (constant currency) and 9% in USD terms and we expect it to decline further as competition for new projects heats up. Moreover, margin decline could be even higher with potential headwinds coming from rupee appreciation. Also, its 1Q guidance is below our estimates and we expect its peers to indicate/guide for a smaller revenue decline in 1Q. Reduce, target of Rs 1200,”says IIFL’s research report.

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