Shares of Infosys slipped 10 percent intraday on Friday slipping below 200-DMA post Q1 after its June quarter results disappointed street. The IT major net profit declined 4.5 percent sequentially to Rs 3,436 crore and revenue increased 1.4 percent to Rs 16,782 crore on quarterly basis. Revenue in dollar terms grew by 2.2 percent to USD 2,501 million and constant currency dollar revenue growth stood at 1.7 percent compared with preceding quarter.
However, Morgan Stanley has an overweight rating on the stock with a target of Rs 1300 stating that implied acceleration in growth rates over Q2-Q4 offers a sliver of hope. JP Morgan is also overweight with a target price of Rs 1350 per share as it believes stock premium is justified by Infosys’s improving revenue growth profile.
But the street has given a big thumbs down to the stock. Here are the 10 reasons that triggered selling
1) One of the most disappointing factor in Q1 earnings was lowering of revenue growth guidance. Infosys cuts its FY17 constant currency revenue growth guidance to 10.5-12.5 percent from 11.5-13.5 percent earlier. This indicates shaving of 150 basis points (bps) at the top-end of the band. JP Morgan says this is due to the sluggish start to the year but it is not clear if there are buffers in guidance to digest the fall-out of Brexit.
However, Reliance Securities feels this steep drop is exaggerated, as seen in the past.
2) Its volume growth was slowest in last 5 quarters and slowest Q1 since FY11 even though this is a seasonally strong quarter. Infosys reported weak volume growth of 2.2 percent dragged by both onsite and offshore volumes. Onsite volumes grew by 3.3 percent sequentially, while offshore volumes grew by 1.8 percent. TCS Q1 volume growth was at 3.4 percent.
3) Pricing declined by 0.7 percent QoQ. Onsite business pricing was negative 0.9 while offshore negative 1.4 percent. JP Morgan expects pricing pressure to be a continued worry for the sector at least in the near term.Pricing pressures in large Infrastructure management-oriented, rebid deals have intensified. “Though Indian IT players are bringing significantly more automation in their delivery, due to competitive pressures they could end up giving large parts of the benefits back to clients in the form of lower pricing, thus limiting margin benefits. Clients are far more focused on cutting back costs of 'run the business' or legacy IT to fund their digital investments,” it adds.
4) It saw a delayed start in ramp ups in one of the large deals won in healthcare vertical in North America and another one in Europe Financial Services. Further, it witnessed slowdown in discretionary work related to consulting and system integration work especially in the life sciences vertical.
5) The company has attributed the lower-than-expected performance headwinds in discretionary spending. The weakness was broad-based cutting across verticals, retail most impacted with just 0.7 percent growth in constant currency, while BFSI grew marginally at 1.7 percent. Infosys reported industry segment growth with most segments facing muted growths. Retail, Logistics, CPG and Life Science reported growth of 0.7 percent in 1QFY1, Manufacturing was at 2.4 percent and ECS (Energy & Utilities, Communications and Services) reported cc q/q growth of2.4 percent and FSI (Financial and Insurance) was up 1.7 percent.
6) Quarterly annualised attrition increased 370 bps 21 percent from 17.3 percent in Q4FY16 in 1QFY17. However, attrition tends to grow in June quarter due to seasonality.
7) Constant-currency blended realisations moderated -0.7 percent after healthy increase last quarter. Onsite realisations decelerated by 0.9 percent, while offshore realisations decreased -1.4 percent constant currency. The moderation in offshore realisation can likely be an indication of Infosys’ aggressive stance in the market to win business.
8) Developed markets did not fare well in a seasonally strong quarter. North America and Rest of the World grew sequentially by 2.4 percent (constant currency terms) while Europe declined by 0.3 percent and India by negative 8.2 percent. Europe and India revenues de-grew 0.3 percent and 8.2 percent respectively while US grew at 2.4 percent.Follow @NasrinzStory
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