IT bellwether Infosys posted a flat third-quarter net profit, beating analyst expectations. The company maintained margins despite higher operating costs; it surprised the street by revising its FY13 guidance upwards.
It reported a marginal drop of 0.12 per cent in net profit to Rs 2,369 crore for the third quarter ended December 31, 2012. However, the revenues (including that of acquired Swiss firm Lodestone) for the reported quarter were up 12.1 percent to Rs 10,424 crore from Rs 9,298 crore in the year-ago period.
"Post management's commentary, it is likely that the street may revise their numbers upwards for FY14 and that may lead to a potential rerating of the stock," Nilesh Shah, MD and CEO of Envision Capital said in an interview to CNBC-TV18 while reviewing Infosys's Q3 earnings.
After a long time Infosys has marginally exceeded street expectations, and revision of guidance indicates that the management is very confident about growth prospects in the short to medium-term versus last few quarters.
"This is a turning point for Infosys. Technology spending in the US has been relatively held back. S Gopalakrishnan had said that global economy seems to be turning, which means that the prospects for the Indian IT sector look good," he elaborated.
Below is the verbatim transcript of an interview aired on CNBC-TV18.
Q: Does Infosys look like a better picture compared to the previous quarter. Can you justify a bit of an upmove this morning?
A: Absolutely, I think after a long time Infosys has met expectations and on the revenue front probably slightly ahead of expectations. The key takeaway is that the margins have not fallen below the numbers that they had guided for. So, a very comprehensive set of performance, a performance which is probably inline with their expectations and their guidance. Hence after a very long time Infosys is coming out with better set of numbers.
Q: The rupee revenue being upped to Rs 40,750 crore this morning?
A: They had guided for Rs 39,600 crore versus that they have now guided for Rs 40,700 crore so, that is about 2.5 percent increase in the rupee guidance, which is good. It is a good indicator of times to come but I am not sure whether that is going to be very significant in terms of upping the earnings per share (EPS) guidance, which they have given at 160 maybe that 160 will go to 162-163 but I do not think it would be significantly more on that. The street is going to do is to up the numbers for FY14 post the management commentary and if that happens that could lead to a potential rerating of the stock.
A: There seems to be a very strong case for a rerating and the valuation gap between TCS and Infosys essentially could narrow down provided the management commentary is a lot more benign. However, when TCS comes out and says what it has to say and on incremental basis if the commentary from Infosys is better than what TCS has to say then there is a very strong case for the gap between TCS and Infosys to narrow down. I think it has been a very long time since Infosys has traded for such a long time at a discount to the Nifty valuation. So, the gap with Nifty valuation could breach and then post that the gap with TCS, provided of course one has to see the management commentary of both the companies on a very relative basis.
Q: Do you think this is a turning point for Infosys?
A: I believe so because after a long time Infosys has marginally exceeded the street expectations, has marginally upped its guidance though of course it includes Loadstone. However, we are seeing this after four-six quarters, which is very important. The second thing is technology spending in the US has been relatively held back.
I read an interview of S Gopalakrishnan where he said that the global economy seems to be turning, which means that the prospects for the Indian IT sector look good. So, if I were to read between the lines then the message is loud and clear that perhaps the management is a lot more confident about its growth prospects over the short to medium-term versus what it has been for the last few quarters.
Q: How are you mapping the market in the near term?
A: The level of 6,000 is becoming some kind of psychological level and most market participants are probably just grappling with the issue that how soon the market will try and attempt to go towards the previous high. I think the market has by and large factored in the positive sentiment, which is coming in from certain action from the government side and probably the market is waiting for two important events (1) is there any takeaways from the earning season and (2) what the Reserve Bank of India (RBI) is going to do later this month.
These two factors are proving to be some kind of a speed breaker to the rally. In addition to that globally most markets seem to be consolidating and moving sideways and Indian markets are no exception to that. So, it is a combination of both local factors and global factors, which has put this market into a short-term consolidation mode.