Brokerages Leave Infosys’ Ratings Unchanged Despite Guidance Cut
Infosys cuts revenue guidance range in dollar terms to 7.2-7.6 percent.
Most of the brokerages have maintained their stance on Infosys Ltd. even as the country’s second-biggest software exporter on Friday cut its full-year revenue guidance for the third time in a year.
While the tweak in full-year revenue guidance did disappoint the street as reflected in the stock’s fall, analysts took heart from the balanced management commentary on key verticals and client spending.
Infosys cut its financial year 2016-17 revenue guidance range in dollar terms to 7.2-7.6 percent as compared to 7.5-8.5 percent earlier. Mirroring the concerns, shares of the company fell as much as 3.8 percent on Friday before paring some of their losses to end 3 percent lower at Rs 971.35.
Analysts at Morgan Stanley continued to assign a greater probability to their bull case scenario for Infosys.
In our bull case, we assume the company is able to demonstrate strong performance on relative basis despite volatile macro-economic environment as various initiatives it has taken start showing results.Morgan Stanley’s January 13 Report
Rival Tata Consultancy Services Ltd. reported better-than-expected results for the December-quarter on Thursday, but came under pressure after Tata Sons Ltd. named Chief Executive Officer N Chandrasekaran as new the new group chairman.
Here is a quick snapshot of brokerage views on Infosys results:
Morgan Stanley
- Topline: Constant currency revenue in line with estimates.
- Earnings before interest and taxes (EBIT) margin: beats forecast.
- Outlook: Expects fourth-quarter revenue growth between -0.2 percent to 1.3 percent sequentially.
- Key risks: Large deal wins take longer than expected to yield results, litigation-related risks in the U.S. involving outsourcing/visas and rupee appreciation.
- Rating/target price: Maintains ‘Overweight’ rating with a target price of Rs 1,130 per share.
While management commentary is positive, and valuations reasonable, the stock lacks catalysts until April 2017, when management will provide guidance for the next year.Morgan Stanley’s January 13 Report
Credit Suisse
- Topline: Constant currency revenue slightly misses estimates.
- EBIT margin: Beats forecast.
- Rating/target price: Maintains ‘Neutral’ rating with a target price of Rs 1,050.
Motilal Oswal
- Topline: Constant currency revenue tad better than estimates.
- EBIT margin: Beats forecast.
- Outlook: Raises FY17 estimates to factor in the slight beat on revenue growth and profitability during the third quarter.
- Key triggers: Uptick in large deal and discretionary spending.
- Key risks: Adverse regulatory developments around current visa regime, margin fall and industry-wide pricing concern.
- Rating/target price: Maintains ‘Buy’ rating with a target price of Rs 1,250.
Any hostile regulatory developments against the current visa regime remain an impending risk for the industry at large.Motilal Oswal’s January 13 Report
IDBI Capital Markets
- Topline: Revenue in line with estimates.
- EBIT margin: Beats forecast.
- Rating/target price: Maintains ‘Buy’ rating with a target price of Rs 1,215.
Emkay Research
- Topline: Revenue misses estimates.
- EBIT margin: Beats forecast.
- Outlook: Disappointed by the company’s revenue performance in North America and top clients and await more clarity from management on this.
- Rating/target price: Maintains ‘Accumulate’ rating with a target price of Rs 1,080.
