Infy guidance unlikely to drive mkts, tech sector: Experts

Infosys Technologies in its fourth quarter and financial year 2008 results has reported a guidance of FY09 revenues at Rs 19,894-20,214 crore and EPS of Rs 92.3-93.9.

Moshe Katri, MD, Cowen & Co, said Infosys is likely to close FY09 with 25-30% revenue growth. “The guidance is clearly not the worst case scenario that people were looking for. They are probably going to close FY09 at 25-30% topline growth. The numbers themselves were pretty much in line. Marketing expenses were a bit lighter but then so were the effective tax rate. Last quarter, a big portion of their revenue growth both sequentially and year after year came from their number one client that is British Telecom.”

Nilesh Shah, MD and CEO, Envision Capital, said Infosys’ guidance would not drive stock. “I don’t expect this guidance to basically drive the market up or drive up the stock price significantly barring a short lift of 4-5% trading move. However, the medium-term trend will get determined when numbers from the old economy or manufacturing companies come out. Now, Infosys has given guidance of around 15%, it remains to be seen what the rest of the companies do. If they kind of give a guidance of 17-20%, then my sense is that the case for a further re-rating of Infosys or re-rating for the tech sector may not be there. On decline or sharp corrections, liquidity may still flow into non-technology side. However, if the manufacturing or non-technology companies deliver earnings growth less than 15%, then you will probably see a case for liquidity to flow into technology on the back of a PE re-rating.”

Dipan Mehta, Member BSE & NSE, said the market will give a higher P/E multiple to Infosys. “How much can Infosys deliver above Rs 81.5, for the next fiscal, is what the market will be looking forward to. That apart, there exist a lot of challenges in the external environment, within the main industry vertical, in which they operate in the US. A lot more focus this time would be over the external environment and the company’s ability to manage these challenges in key markets is what we are looking forward to.”  

CLSA is of the view that though Infosys has delivered on margins, it’s not to the same extent on revenues. Infosys revenue guidance is on the lower end of street expectation.

Rashesh Shah, CMD and CEO, Edelweiss Capital, said the markets are relieved after Infosys’ fourth quarter results. He said the quarter ending June 30 would be key, as after that people will expect to start seeing improvement.

R Ravi of Karvy Stock Broking expects FY09 EPS of Infosys to be at 95.5 and maintains price target at Rs 1,950. “The company could report earnings per share of around close to Rs 96.5. The key factor is how the pound will play out as we go forward because that has depreciated by 5%, and also, the dollar. Next year, I presume both the dollar and pound will remain pretty much stable. I am quite confident that the company would do an EPS of about Rs 96.5 because the company has their client portfolio at their disposal. They will get strong volume growth ahead. Q1 would be an exception; they will probably de-grow by around 3-4% in terms of profitability. From Q2 onwards, they will probably report much better growth.”

Ravi expects Infy to do a little close to Rs 21,000 crore in revenues. “In terms of operating profit and net profit, I am expecting around Rs 6,022 crore and Rs 5,465 crore respectively which translates to an EPS of Rs 95.5. The only concern is if the rupee breaches 39, if it doesn’t you will safely cruise through in nurturing these numbers.”

SA Narayan, MD, Kotak Securities, said Infosys' results are not very positive. "It is neither market negative. We cannot take a call on midcap tech earnings on the basis of Infosys. The markets will assign a price-to-earnings of 17 times to Infosys post results."

Technical Analyst Ashwani Gujral said the Infosys stock is trading rangebound between Rs 1,300 and Rs 1,550. “I doubt whether this sort of news will take it beyond Rs 1,550. If it does, then the stock could see further outperformance probably towards Rs 1,700 or Rs 1,750, which was a key support when it was falling down. The intermediate downtrend will end once Infosys can get back above Rs 1,750.”

Sudin Apte, Senior Analyst and Country Head, Forrester, said results for year-ended March 31 are looking very positive. “35% growth in dollar terms, almost 27% profitability or 20% growth in rupee terms, that’s a good number. BFSI contribution as a percentage of revenue went down by 3%, but Infosys’ management was successful in growing manufacturing and high-tech verticals to compensate for that drop. If you continue to see that manufacturing and high-tech growth coupled by European growth, I think Infosys should be in a position to beat that 19-20% growth for the coming fiscal.”

Rajiv Mehta, IT Analyst, India Infoline, said when the numbers come inline and when one has such a low expectation it tends to become a positive for the stock. “That is what we are seeing right now. It does not leave with any key takeaways, which actually indicates that the fundamentals of the sector have changed.”