Infosys Gains As Analysts Cheer $2-Billion Contract Wins

Shares of Infosys Ltd. gained in early trade as analysts maintained their stance on India’s second-largest IT services provider amid large fresh deals worth $2 billion, even as margins missed estimates.

Net profit of the company rose as expected in the three months ended September and it also maintained full-year guidance, backed by strong client addition for the second straight quarter.

“The deals during the quarter looked positive,” Harit Shah, analyst at Reliance Securities, told BloombergQuint in interaction. “Although margins disappointed, we would look at the positive aspects given that they are investing in the business.”

Infosys was unable to benefit from the depreciation of rupee as Indian software exporters bill majority of their clients in dollars. The local currency declined 5.6 percent during the quarter. The company’s margin remained flat sequentially at 23.7 percent in the quarter compared with an estimate of 24.4 percent.

“As the revenue growth comes through, margins will take care of themselves,” Shah said. “From the overall growth perspective, we see no reason to change our stance.”

Mayuresh Joshi, fund manager at Angel Broking, said legacy verticals driving business will be key for Infosys. “The financial services segment had a good show for Infosys, and that is where the core focus is going to be.”

Shares of Infosys rose 1.45 percent to end at Rs 705 apiece in trade on Wednesday. The stock was the best performer on the Sensex and the Nifty.

Here’s what brokerages said about Infosys’ quarterly earnings:

BofAML

• Maintains ‘Buy’ and raised price target to Rs 805 from Rs 790, implying a potential upside of 16 percent from the last regular trade.
• Improved growth outweighs margin miss in the second quarter.
• Expects a return to double-digit revenue growth by the end of the ongoing financial year.
• Attrition rates likely to normalise in the next two quarters.

Nomura

• Maintains ‘Reduce’ with a price target of Rs 670, implying a potential downside of 4 percent from the last regular trade.
• September quarter review: Beat on growth, margin miss a negative.
• Growth was broad-based; outlook appears optimistic on banking, financial services and insurance, and retail segments.

CLSA

• Maintains ‘Buy’ with a price target of Rs 950, implying a potential upside of 36 percent from the last regular trade.
• September quarter review: Sharp revenue beat and stellar deal wins, soft margins and guidance.
• Digital focus keeps client relevance strong.

Macquarie

• Maintains ‘Outperform’ and raised price target to Rs 775 from Rs 770, implying a potential upside of 11 percent from the last regular trade.
• Focus on investments for medium-term growth is a step in right direction.
• Large deal wins were strong at $2 billion.
• Believes Infosys deserves to trade at a 20 percent discount to TCS.

UBS

• Maintains ‘Buy’ with a price target of Rs 890, implying a potential upside of 28 percent from the last regular trade.
• Constant currency revenue grew higher than estimates.
• Strong revenue growth and contract wins are early signs of investments paying off.
• Expects a positive stock reaction.

Credit Suisse

• Maintains ‘Neutral’ with a price target of Rs 680, implying a potential downside of 2 percent from the last regular trade.
• September quarter results were mixed; large deal wins were nearly twice than that in the first quarter.
• Revenue was encouraging across many segments.
• Weaker-than-expected margins take away the sheen from strong growth.