Analysts Retain Infosys Ratings Despite Near-Term Uncertainties

Infosys Ltd.’s earnings dropped in the quarter ended March as the new coronavirus pandemic brought the whole world to a virtual standstill and disrupted trade. Yet, analysts are bullish as they see the software services provider better placed than peers.

Net profit fell 2.9 percent sequentially to Rs 4,335 crore in the January-March period, according to an exchange filing. While its operating profit fell 2.7 percent to Rs 4,927 crore, margin narrowed 70 basis points to 21.2 percent on account of the costs of transitioning almost 93 percent of its employees to work from home.

Infosys has also stopped new hiring, frozen salary hikes and temporarily suspended promotions. It even temporarily disbanded its practice of providing annual revenue growth guidance and operating margins projection amid disruptions caused by the virus outbreak.

While analysts said deferring 2020-21 guidance is in line with expectations, hiring and wage hike freeze will aid margin.

Here’s a round-up of analysts’ comments on Infosys’ fourth-quarter results:

CLSA

• Retains ‘buy’ but cuts target price to Rs 800 from Rs 970 apiece.
• Expects revenue pressure in first quarter of ongoing financial year.
• Sees cuts in client discretionary spending, higher discounts.
• Strong deal wins and pipeline to aid recovery.
• Hiring and wage freeze may help margins in second quarter.

BofA Securities

• Maintains ‘buy’ with a target price of Rs 750 apiece.
• Fourth quarter: small misses on revenue and profitability.
• Business continuity efforts have been successful.
• Large deal signings during fourth quarter remained strong.

UBS

• Maintains ‘neutral’ with a target price of Rs 660 apiece.
• FY21 guidance deferred, which is in line with expectations.
• Markets might not like fourth quarter margin miss.

Investec

• Retains ‘hold’ with a target price of Rs 650 apiece.
• Revenue decline largely because of supply-side disruptions.
• Heightened uncertainty has led to disbanding of annual guidance.
• Impact of Covid-19 more broad-based.
• All clients cutting discretionary spends sharply.

Phillip Capital

• Maintains ‘buy’ and hikes target price to Rs 715 from Rs 690 apiece.
• Muted results as expected.
• Impact of Covid-19 led to a slight disappointment in growth and margins in fourth quarter.
• Better placed than most peers.