Moneycontrol
Jul 17, 2017 03:42 PM IST | Source: Moneycontrol.com

Brokerages highlight Infosys’ performance in tough times; stock ends over 1% higher

The IT bellwether’s first quarter earnings beat analysts' expectations on all counts on Friday, with the company retaining its full year constant currency revenue growth guidance.

Buying momentum continued in Infosys post its announcement of results for the June quarter as the stock gained nearly 2 percent intraday. Majority of global brokerages gave the company’s earnings performance a thumbs up and believe that the company stood steady in challenging times.

The IT bellwether’s first quarter earnings beat analysts' expectations on all counts on Friday, with the company retaining its full year constant currency revenue growth guidance.

Consolidated profit during the quarter fell 3.3 percent sequentially to Rs 3,483 crore and revenue declined 0.2 percent to Rs 17,078 crore. Dollar revenue growth was 3.2 percent at USD 2,651 million against expectations of 2.6 percent increase and constant currency revenue growth came in at 2.7 percent against estimates of 2 percent.

Global brokerages largely retained their positive stance on the stock. Moneycontrol takes a look at what they said.

Brokerage: Jefferies | Rating: Buy | Target: Rs 1,100

The global research firm highlighted that the revenue was in line with the estimates, while the margin performance was robust, backed by realisation gains and impressive execution on utilization.

IT noted that the guidance was maintained with a few chinks in the operating metrics. “We believe that reaching the higher end guidance will hinge on stronger second half growth, something that doesn't inspire much confidence given last three year history and lack of consistent data points on industry demand,” the brokerage said in its report.

Further, it said that the company was best placed amid industry headwinds. “Expectations remain low, growth is likely to remain stable in FY18E and while there have been some hiccups, management's execution has continued to be robust,” the report added.

Brokerage: Bank of America Merrill Lynch | Rating: Neutral | Target: Rs 972.05

The global research firm too highlighted how Infosys managed to mildly beat expectations on revenue and margins. This, it said, was helped by strong growth in emerging markets and tight execution.

“Qualitatively, contribution of new offerings is healthy (10% of rev) and so is the contribution of digital services. At 23%, it is largely comparable to Cognizant/ TCS,” the brokerage said in a report.

Further, it added that it liked the firm for its improving competitive positioning both in traditional services and new IT services. However, it is neutral on the stock, pending improvement in demand for the key financial services vertical and amid soft FY18 EPS growth on account of increase in onsite investments.

The company, it added, remained hopeful of improved growth in financial services starting H2 this fiscal.

Brokerage: Goldman Sachs | Rating: Sell | Target: Rs 799

The global research firm said that it raised Fy18-20 earnings per share (EPS) estimate by 2-4 percent and for the current fiscal the dollar constant currency growth is seen at 6.8 percent.

Having said that, it saw a significant risk for Infosys’ future pricing growth given peer TCS’ pricing was down 1.5% qoq in Q1 and Infosys’ still-high exposure to legacy app services, which are under acute pressure from cloud-based SaaS.

“On margins, we believe Infosys has exhausted most of its levers with: a) utilization expected to fall with increased local hires in the US, and b) higher sub-contracting costs,” the brokerage said in a report.

At the close of market hours on Monday, Infosys was quoting at Rs 987.95, up Rs 15.90, or 1.64 percent on the BSE. It touched an intraday high of Rs 991.20 and an intraday low of Rs 973.25.
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