Infosys Advances on Second-Quarter Earnings Beat

(Bloomberg) -- Infosys Ltd., Asia’s second-largest exporter of software services, posted a higher-than-estimated increase in net income as investments in its high-margin digital services and automation paid off. The stock climbed as much as 3.8 percent.

Analysts, however, remained concerned about the company’s margins, which were narrower than expected even with the benefit of a weaker rupee. “Margin disappointment can hold back any re-rating,” Credit Suisse said in a note.

Here’s what analysts had to say about the results:

CITIGROUP (Surendra Goyal)

  • Ebit growth of 5% y/y in USD terms (3% below est.) despite ~10% rupee depreciation is something to keep in mind for long-term investors
  • Infosys’ discount to Tata Consultancy Services Ltd. could narrow further with growth acceleration; prefers Infosys to TCS
  • Surprised by the narrowing in gross margin despite rupee depreciation
  • Maintains neutral with PT760 rupees

EMKAY GLOBAL (Rahul Jain )

  • Sales outlook for FY20 improved slightly on 2Q growth, better commentary and large deals
  • Weaker margin estimates could lead to EPS downgrades
  • Ebit margins remained flat despite currency tailwinds due to an increase in sub-contractor costs, wage hikes and compensation increases to curb rising attrition
  • Maintains sell rating with PT580 rupees

CREDIT SUISSE (Anantha Narayan)

  • Flat Ebit margins were well-short of expectations; attrition remained high at 21%
  • Weaker-than-expected margins takes sheen away from strong growth
  • Revenue was encouraging across many segments
  • 2Q numbers addresses the concern of slower growth to some extent

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