Street cheers Infosys Q3 results; here's what analysts say
Infosys has had a series of disappointments over the last few quarters. So the double good news -- better-than-expected third quarter results and FY13 guidance raised (analysts were expecting a cut) -- sent investors rushing to buy the stock.
January 11, 2013 / 17:09 IST
Moneycontrol Bureau
Infosys has had a series of disappointments over the last few quarters. So the double good news on Friday -- better-than-expected third quarter results and FY13 guidance raised (analysts were expecting a cut) -- sent investors rushing to buy the stock. The shares opened up 10 percent and by noon had jumped 16 percent to Rs 2,695 on NSE. The Bangalore-based company reported a consolidated net profit of Rs 2,369 crore, unchanged quarter-on-quarter (down 0.1% from year ago), while revenue rose near 6 percent sequentially (12 percent YoY) to Rs 10,424 crore in Oct-Dec."We believe Infosys's results signal a turn in trajectory of the revenue growth...Although quarter results were driven by a return to a mean in pricing post significant disappointment earlier on in the year, we believe this could reflect some initial success in the company's new, more aggressive strategy," said Bhuvnesh Singh and Vaibhav Dhasmana of Barclays.Infosys now expects revenue for the full year to be at least Rs 40,746 crore, and EPS of at least Rs 162.80, higher than its earlier guidance of revenue of at least Rs 39,582 crore and EPS of Rs 160.61. Its USD revenue forecast also goes up to at least USD 7.45 billion (including contribution from Lodestone), from at least USD 7.34 billion."The company's organic growth guidance of 5.1 percent in Q4 versus our estimate of 3.5 percent is a positive surprise. Stock had been under owned among investors on back of series of below estimate numbers; current quarter performance will infuse confidence," said Ashish Chopra, IT analyst at Motilal Oswal Sec. There were also other positive surprises -- pricing went up 1.8 percent sequentially due to change in business mix and despite offshore wage hikes, EBIT margins declined just 68 bps to 25.7 percent. Analysts had not ruled out a 25-50 bps decline in pricing and up to 100 bps cut in margins.Infosys, once the IT bellwether, has indeed delivered solid performance in the last quarter, although its still lagging behind the 11-14 percent industry growth projected by NASSCOM. Will there be a rerating of the shares now and will we see the gap between Infosys and Tata Consultancy Services, which reports its Q3 earnings on Monday, narrow?"This is a credible performance from Infosys after last 8 quarters of disappointment. With the current set of results, there seems to be a case to a rerating of Infosys and narrow down of gap between TCS and Infosys but it will depend on how client budgets pan out for next year and Infosys' share in deal renewals area," said Ankita Somani of Angel Broking. Somani has an "accumulate" rating on the stock."Growth in Dec (and the March guidance) now implies a narrowing of the growth gap versus TCS, which we believe could help the stock," say the Barclays analysts. They currently are "equal weight" on the stock. Also Read: Q3 result turning point for Infy; re-rating seen, says Envision"The current quarter performance may support the company's stock in the near term. However, the company's management continues to remain cautiously optimistic on the business environment," said Microsec Research, advising investors "hold" the stock for now, with a target of Rs 2,722.Infosys shares finally closed at Rs 2,712.10 on NSE, up 16.8 percent on NSE. As of Thursday's close, the stock is down 19 percent so far this financial year. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
