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Infosys' better-than-expected third quarter earnings encouraged brokerages to raise target price on the stock following increase in earnings per share expectations. They feel further re-rating is likely on the stock and it can be a good defensive stock in the current environment. The stock rallied 3 percent intraday Friday, in addition to 4.3 percent upside in previous session.
Based on continuing solid execution, Credit Suisse has upgraded the stock to outperform and increased target price to Rs 1,400 apiece (from Rs 1,175). According to the brokerage, medium-term impact on margins due to aggressive contracts is the key risk.
With raising FY16-18 earnings per share by 2-3 percent and target price to Rs 1,350 from Rs 1,325, Bank of America Merrill Lynch says the stock remains preferred pick in the sector.
Infosys convincingly beat expectations, with 0.6 percent Q-o-Q growth in dollar revenue (1.1 percent constant currency), overcoming previously-articulated challenges in financial services, furloughs and retail softness besides the Chennai floods. Consolidated profit rose 1.94 percent sequentially to Rs 3,465 crore and revenue grew by 1.7 percent to Rs 15,902 crore in quarter ended December 2015, partly helped by ramp-up of deals in India.
It not only surprised analysts with October-December quarter earnings, but also with its full year guidance and attrition rate. The software services exporter has revised dollar revenue growth guidance upwards to 8.9-9.3 percent from 6.4-8.4 percent earlier and also raised revenue guidance to 12.8-13.2 percent in constant currency from 10-12 percent earlier. Its operating profit margin declined 60 basis points due to lower realisation, but that was also ahead of estimates.
CLSA says the stock is a high-conviction buy, adding the company is beginning to display greater sustainability of performance and it appears on track to beat most India-listed peers on growth in FY16/17, ahead of its previous targets which should drive a re-rating to 18x 1-year forward PE.
The brokerage upgraded FY17/18 revenue estimates due to growth aggression and take margin expectations down 70 basis points, driving 1 percent earnings cuts.
Macquarie has maintained outperform rating on the stock, saying increased guidance implies that Infosys' Q4 USD revenue would grow at double digits after a gap of nine long quarters – a prelude to Infosys returning to above industry growth by FY17. The brokerage raised target price to Rs 1,400 from Rs 1,350 earlier.
Total contract value deal wins were a bit light during the quarter due to the holiday season but Q4 will be a good start, feels Macquarie. Closure of three large deals was pushed out in Q4FY16 by Infosys, who says two of these have already been signed so far in January.
UB Pravin Rao, COO was confident that given the deal pipeline the company is comfortable with winning close to USD 1 billion in quarterly total contract values.
With maintaining neutral rating and raising target price to Rs 1,130 from Rs 1,100, Goldman Sachs says the stock is trading at 5/15 percent premium to TCS/sector, leaving little upside.
Citi too says it sees limited absolute upside for the stock, though the company is better placed than TCS post earnings.
At 09:48 hours IST, the scrip of Infosys was quoting at Rs 1,150, up Rs 21.30, or 1.89 percent on the BSE.Posted by Sunil Shankar Matkar
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