Q3 Results: Infosys Gains As Brokerages Remain Upbeat

Infosys Ltd.’s move to increase its revenue growth guidance on strong deal wins was cheered by investors as the stock rose almost 4 percent in early trade today. Most brokerages also remained upbeat.

The stock gained as much as 3.9 percent to Rs 710.20, the most since Nov. 28, 2018, compared to a 1.3 percent rise in the Nifty IT Index. It was the second-best performer on benchmarks S&P BSE Sensex and NSE Nifty 50. The company had announced its earnings post market hours.

ADRs—securities of a non-U.S. company that trade in the American market—of India’s second-largest software services provider rose on Friday even as the firm’s profit and margin missed analyst expectations.

The software services exporter now expects its constant-currency revenue growth at 8.5-9 percent compared with 6-8 percent earlier as it secured deals worth over $1.5 billion each.

Its net profit fell 12.2 percent sequentially to Rs 3,610 crore in the October-December period, the company said in its exchange filing. That compares with Rs 4,136-crore consensus estimate of analysts surveyed by Bloomberg.

• Revenue rose 3.8 percent quarter-on-quarter to Rs 21,400 crore.
• Revenue in dollar terms rose 2.3 percent to $2,987 million, in line with estimates.
• Operating profit fell 10.5 percent to Rs 4,379 crore.
• Operating margin fell 110 basis points to 22.6 percent.

Infosys’ margin fell to its lowest in at least 10 quarters in the three months to December. That was partly because it accounted for depreciation at its controversy-stricken subsidiaries Skava and Panaya. Yet, the margin remained within the guided range of 22-24 percent.

Here’s what the brokerages said about Infosys:

PhillipCapital

• Maintain “Buy”; increased price target to Rs 800 from Rs 750, implying a potential upside of 17 percent from the last close.
• Strong performance; small miss on margins.
• Expect strong revenue growth in coming quarters due to recent performance and deal flow momentum.
• Remain positive on the back of improving business metrics and significant valuation gap to Tata Consultancy Services.

Investec

• Maintain “Buy”; cut price target to Rs 784 from Rs 820, a potential upside of 14.7 percent.
• Solid beat on revenue; margin weakness to continue.
• Announced buyback to restrict downsides on the stock.
• With growth coming back, believe valuation gap with TCS to narrow.

Motilal Oswal

• Maintain “Buy” with a price target of Rs 800, implying an upside of 17 percent.
• Highest growth in 10 quarters at lowest-ever margin.
• Impressive catch up on revenue growth with industry leaders is encouraging.
• Margin under pressure due to investments and secular trends.

Ambit

• Maintain “Buy” with a price target of Rs 775, a potential upside of 13.4 percent.
• Expect investment intensity to lower beyond the current financial year resulting in 200 basis points margin expansion over FY19-21.
• Strong growth acceleration and guidance upgrade add to conviction about a catch-up with TCS.
• Infosys’ valuation discount of 20 percent versus TCS appears more enticing than ever.

Nomura

• Maintain “Reduce” with a price target of Rs 670, a potential downside of 2 percent.
• Revenues were materially ahead of expectations and revenue guidance rise was a positive.
• Revenue beat will be countered by a margin miss and recent rupee appreciation.
• Relative preference for TCS stays as growth could equalise.

Emkay

• Maintain “Reduce” with a price target of Rs 640, a potential downside of 6.4 percent.
• Margin-dilutive growth is not exciting.
• Priority on revenue and need for business investment would mean earnings growth.
• High attrition to dampen client-mining and renewal rates.