Infosys CEO Salil Parekh (left), and CFO MD Ranganath at an earnings press conference. (Photographer: Nishant Sharma/BloombergQuint)

Q4 Results: Brokerages Disappointed By Infosys’ Margin Guidance

Infosys Ltd.’s January-March quarter earnings matched analysts’ estimates, but brokerages are disappointed by the company’s margin guidance.

The Bengaluru-based company lowered the target band for operating margin for the financial 2018-19 to 22-24 percent from 23-25 percent in the previous year. Anticipated investments in the digital business, employee training, greater localisation in developed markets, and revitalising the sales force were all factors that led to the reduction in margin guidance, said Infosys' Chief Financial Officer MD Ranganath.

Margins are being sacrificed to secure future growth, said brokerage PhillipCapital in a note to clients. The margin levers cannot rest on employee utilization and expense management for much longer, wrote JPMorgan analysts.

The 7.7 percent fall in Infosys’ American depository receipts on Friday was overdone, JPMorgan added. The information technology services provider announced its results after the close of trade in India.

Here’s more from what top brokerages had to say about Infosys’ earnings:

Morgan Stanley

  • Mixed results, FY19 margin guidance was a negative surprise.
  • Expect the stock to pare some of the year-to-date gains on disappointing outlook.
  • FY19 revenue guidance of 6- 8 percent is below the expected 7-9 percent range.
  • Lower margin outlook for FY19 could be partially offset by capital distribution plan.


  • Higher investments, which contributed to reduction in margin band by 100 basis points, will help accelerate revenue growth in the medium term, especially in digital areas and large deal wins.
  • Raised the target price-to-earnings multiple to 17 times from 16 times on capital allocation policy, revenue outlook.
  • Expect Infosys to have EBIT margins of 23.5 percent in the current financial year.
  • Insurance, telecom, manufacturing and utilities verticals will help revenue growth this year.


  • January-March quarter financials were in line, but margin guidance disappointed.
  • Additional cash returns to shareholders could cushion the stock price fall.
  • Growth weakness in developed markets, banking, financial services and insurance, and retail are negatives.


  • EBIT margin guidance a disappointment even as revenues were in line with expectations.
  • Results represent the need to make fresh revenue-generating investments.
  • ADR reaction overdone as theoretical downside to earnings per share is around 4 percent due to guidance.
  • FY19 margin levers cannot rest much longer on utilization and expense management.


  • Decent fourth quarter results marred by weak margin guidance.
  • Margins are being sacrificed to secure future growth.
  • Currency tailwinds might aid getting closer to the higher end of FY19 guidance.
  • Disposal of Panaya and Skava was a surprise given earlier management was upbeat on the two units.


  • March is the weakest quarter for Infosys and this was compounded by the change of guard.
  • FY19 guidance implies acceleration in revenue growth.
  • Lowering of the EBIT margin range will result in around 1-2 percent cut in FY19 EPS.
  • Valuations are attractive given the improving business outlook evidenced by revenue growth acceleration.