Infosys Technologies

We believe FY3/10 could be stronger than the company’s guidance, as management believes 3%+ QoQ (constant currency) revenue growth could be possible if the environment remains strong. This would help margins remain flat for the year. FY3/11 could also be shaping up well. While customers could still be cautious on the economy, the company could grow its top line by 3-4% QoQ on the back of the current momentum. If economic concerns dissipate in 1H 2010, and customer spending picks up,FY3/11 sales growth could exceed 20% (constant currency). Infosys plans to hire 20,000 people in FY3/11 despite having a low utilization rate of 65% (including trainees). Given this supply, we calculate that the company can grow its volumes by 22% if it returns to its historical utilisation levels of 75-77% (excluding trainees) in FY3/11. Strong hiring targets, the accelerating conversion of pipeline to actual orders and excellent cost control should lead to strong consensus upgrades in the near term. We thus maintain our Outperform rating and increase our target price to Rs 2,900.