Compass: Infosys guidance below expectations

Despite the weak rupee, Infosys says it’s earnings per share (EPS) will be anywhere between  3-7 per cent lower in 2009-10 than the Rs 104.50 that it posted in 2008-09.

That’s a somewhat  disappointing number and clearly pricing pressures are telling on the revenues; Infosys says dollar revenues are expected to fall by a similar amount in the current year over 2008-09 levels. The weak top line is obviously putting pressure on the operating margins and unless there is a recovery in the environment in the second half of the year, billing rates are unlikely to move up again.
 
The stock which currently trades at slightly more than 14 times forward earnings is unlikely to trade at higher multiples in the near term. The Street was expecting reasonably good guidance at the earnings level even if the dollar revenues were going to be lower. However, that doesn’t seem to be the case. The stock could retrace to lower levels of around Rs 1,250 in the near term, trading at around12 times forward.

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