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Oct 12, 2012, 10.17 AM IST | Source: CNBC-TV18

Infosys Q2: Stock may slip to last quarter lows, cautions Nilesh Shah

Nilesh Shah, managing director and chief executive officer, Envision Capital told CNBC-TV18, lowering of dollar revenue guidance will not augur well for the stock. "The core business continues to be under pressure. The street is not going to look at it favourably," he added.

IT giant, Infosys reported a 3.5 percent rise on quarter-on-quarter to Rs 2,369 crore , largely meeting expectations. Revenues increased 2.52 percent to Rs 9,858 crore in the quarter ended September 2012 from Rs 9,616 crore in the previous quarter.

It slashed its earnings per share guidance to Rs 160.61 a share from Rs 166.46 a share earlier. Also, it cut constant currency dollar revenue guidance to 5.7% versus 6% for FY13.

Nilesh Shah, managing director and chief executive officer, Envision Capital told CNBC-TV18, lowering of dollar revenue guidance will not augur well for the stock. "The core business continues to be under pressure. The street is not going to look at it favourably," he added.

Disappointing Q2 earnings dragged the stock nearly 8 percent down. The outperformance seen by stock in the last three months is likely two fade away now. The stock may settle around Rs 2,300-2,350 mark, in worst case scenario, it can touch lows seen in last quarter, Shah cautioned.

Below is the edited transcript of Shah’s interview with CNBC-TV18.

Q: What is your reaction on Infosys results?

A: These numbers are slightly below our expectations. They have not positively surprised, but the fact that they have lowered the dollar guidance, does not bode well for the stock. There would have been expectation that their Lodestone acquisition would help them up the guidance, but that has not been the case, which means that the core business continues to be under pressure. The street is not going to look at it favourably.

Q: After six years of being at the helm of the CFO’s post, V Balakrishnan has decided to quit. Almost on all parameters FY13 guidance is a miss, with this how would the impact be on the stock?

A: This surely doesn’t bode well for the stock, this quarter earnings have been one more sequel to the series of disappointing quarters that they have had over the last year and year and half. The stock has been a strong out performer over the last three months; I expect that a lot of out performance would be given up.

It is quite possible that the stock would probably settle around Rs 2,300-2,350 mark. In a worse case situation, it can go back to the lows seen during the last quarter. It continues to be a disappointment. It doesn’t give any hype from a stock or a sector or even from a market point of view. This surely is not going to be catalysts for the market.

Q: How would you approach the entire sector now, given the numbers that you have seen today?

A: The numbers are disappointing and we are clearly going to see a downtick both for Infosys as well as rest of the IT stocks itself. At a particular level of valuations whether that level is about Rs 2,200-2,300, where you are getting the stock at 12-13 times, those are meaningful levels where one can basically start looking at buying into the stock.

Right now, there is a lot more hope that somewhere the internal dynamics at Infosys will change, but in the current environment that is asking for too much.  The call now is that will TCS and the others really come in with a strong set of numbers or will come in with strong set of guidance?

READ MORE ON  Infosys, Q2, earnings, IT sector
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