Infosys: Analysts cut earnings estimates as poor outlook shocks
Infosys shares fell 1.5% on Monday, following its 13% crash on Friday, after the India's second largest software services exporter reported disappointing fourth quarter earnings and a much lower-than-expected guidance for the current fiscal.
April 16, 2012 / 15:45 IST
Moneycontrol Bureau
Infosys shares fell 1.5% on Monday, following its 13% crash on Friday, after the India's second largest software services exporter reported disappointing fourth quarter earnings and a much lower-than-expected guidance for the current fiscal.Brokerages verdict on Infosys was clear -- the company had spoilt the show with disappointment on all parameters; fourth quarter US dollar revenue was below street expectations, as was the first quarter and full year FY13 forecast.The Bangalore-based company, which set benchmarks till not so long ago, has forecast a full year growth of 8-10% in US dollar revenue, which is even lower than the 11-14% sector growth projected by industry body NASSCOM. Analysts too were expecting Infosys to guide for 12-14% US dollar revenue growth for the current fiscal year.Most analysts have downgraded their earnings estimates on Infosys and some analysts like CLSA and Macquarie have also downgrade the stock. But some also still maintain a "buy" or equivalent rating on the stock.Here are some analysts' comments on Infosys: Angel Broking: Management commentary has turned extremely cautious for the next year's budget flush pattern. Also, the company is witnessing delays in ramp-ups of the deals being signed. This is clearly reflected in management's disappointing FY13 guidance. In addition, for Q1, management has given USD revenue growth guidance of 0-1% sequentially, which indicates that management is banking on back ended growth. That makes us cautious as the second half of every fiscal year is typically slow. Rating: Buy. Target: Rs 2,792.CLSA: Mishaps on the HR front, a protracted reorganisation and continued operational slip-ups, all in the past 18 months has invariably raised the bogey of Infosys is losing its magical operational excellence. Rating: Cut to underperform from outperform. Target: Rs 2,630. Emkay: Infosys' frequent misses in the recent past have dented credibility; however, we see course correction ahead as management gets its act together post the internal reorganisation that has occupied centre stage through FY12. We cut FY13 earnings estimate by 1%. Rating: Accumulate. Target: Rs 2,800.Dolat Capital: Infosys has been constantly dealing with management transition and restructure as it keeps on passing the top job baton to all the founders. Company has seen 4 CEOs in last 10 years as against just 2 for TCS, 3 for Wipro and 1 in case of Cognizant/HCL Tech. We believe that the quick change in top leadership has resulted in weakening client relationship and thus the financial underperformance. Cut EPS estimate by 3% for FY13. Rating: Buy. Target: Rs 2,870.Kotak Institutional: Apparent lack of control has undermined the relevance of the guidance; FY13 forecast is incoherent and faces the same issues as FY12. We may have underestimated execution issues of Infosys but do highlight that spending cuts in two large verticals, visa issues and competition are playing a part in impacting equilibrium of the industry. We cut fiscal revenue growth estimate to 7.5%, but inexpensive valuation prevents a rating downgrade. Rating: Add. Target: Rs 2,750.Macquarie: Infosys disappointed the market by missing its muted Q4 guidance and providing FY13 outlook that would lead to earnings downgrade across the street. While the stock declined on Friday, we do not see value emerging given the bleak growth prospects. Better earnings performance from other IT vendors during the next two weeks can further weaken the investment argument for Infosys. We now forecast 9% USD revenue growth for FY13 versus 12.5% earlier. Rating: Cut to Neutral. Target: Rs 2,450.Motilal Oswal: Infosys' disappointing results, weak outlook for FY13 and tepid margin guidance despite doing away with wage hikes, doesn't just bode negatively for Infosys, but raises concerns on the FY13 growth prospects for the sector. Cut FY13 USD revenue estimates by 4.6% and EPS estimates by 5.7%. Rating: Buy. Target: Rs 2,883.Nirmal Bang: Infosys' below expected performance suggests the environment has worsened as clients ramp down engagements on rising macro-economic uncertainty. It will not give salary hike in FY13, a clear sign of the issues the company is facing with regard to revenue visibility. We cut FY13 revenue, EBITDA, EPS estimates by 7.7%, 12.6% and 11.6% respectively. Rating: Hold. Target: Rs 2,438.Nomura: Margin dip guidance, despite zero wage hike indicates volume versus hiring mismatch in the near-term leading to lower realizations. There appears a case for multiples to contract as confidence in Infosys guidance reduces, and given the cautious commentary; we expect investors to wait to take a call on more normal FY14 revenue forecast. Rating: Buy. Target: Rs 3,350.Prabhudas Lilladher: The divergence between Infosys' performance and global tech majors (Accenture, Capgemini, Oracle) was a big negative surprise. The current guidance for Infosys puts tough asking rate for Q2-Q4 of FY13. We see demand environment is improving, however, the growth guidance is stiff target to achieve. Rating: Buy. Target: Rs 2,940.Sharekhan: Client specific issues and lower than anticipated ramp up in the projects has led to Infosys missing the upper end of revenue guidance for a third consecutive quarter. The company has refrained from giving an optimistic growth forecast owing to multiple issues and an uncertain macro environment. We downgrade estimates for FY13 and continue to prefer TCS over Infosys. Rating: Hold. Target: Rs 2,440.Infosys shares were down 1.6% at Rs 2,364 on NSE in noon trade.
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