Moneycontrol Bureau
Shares of Infosys rose 3.6 percent intraday on Friday after it announced December quarter earnings. The stock is just Rs 5.80 away from touching its record high of Rs 3581 (tested on January 4, 2014). Investors are euphoric on the stock as the IT exporter raised its full year (FY14) dollar revenue guidance to 11.5-12 percent from 9-10 percent earlier, which was largely in-line with analysts' expectations of 11-12 percent.
During the period, its consolidated revenue increased 0.47 percent sequentially (up 25 percent Y-o-Y), in-line, to Rs 13,026 crore and dollar revenue climbed 1.6 percent Q-o-Q to USD 2,100 million in the quarter gone by.
Its adjusted net profit rose 19.4 percent, higher-than-expected, quarter-on-quarter to Rs 2,875 crore in the quarter ended December 2013. Year-on-year growth in profit was 21.4 percent. Its profitability was impacted by visa cost of Rs 219 crore (one off item) in the quarter ended September 2013.
So, how to trade it now?
Nilesh Shah, Envision Capital feels that the stock may be in a consolidation zone and the recent highs itself will actually act as a significant resistance. “Utilisation is likely to keep inching up which could lead to margin expansion for a few more quarters and that is going to be a huge positive for Infosys as a company,” he said in an interview to CNBC-TV18.
Moshe Katri, MD, Cowen & Co is positive on the stock. He feels better-than-expected sequential growth at 1.6 percent in dollar terms, FY14 guidance and margin expansion will work wonders for the company. “We are going to see revenues accelerate and margins stabilise and obviously some of the other things are going to get taken care of as well. The volume growth in the quarter was weak, but it is also a weak for the group and for Infosys and on top of that we are expecting attrition rates to gradually decelerate,” Katri explains.
Chandan Taparia, Derivative & Technical Analyst at Anand Rathi Securities says that if it sustains above Rs 3,580 only then fresh rally maybe seen in the stock. "On downside, we have major support at around Rs 3,300 levels. So today if it sustains above Rs 3,580 then only the next momentum maybe seen in the stock. So traders can go with 3,600 Call if it sustains above Rs 3,600 levels only," he added.
However, Ankur Rudra, VP-Institutional Equities, Ambit Capital is not betting on the stock. He has a sell rating on the stock with a target of Rs 2900. Though he expects FY15 to be a growth year for IT industry, he does not see Infosys as a growth leader. Instead he is positive on HCL Technologies and TCS.
Brokerages analysis
Barclays • Third beat and raise quarter in a row • Under the guidance of the new executive chairman, Narayana Murthy, Infosys continued its string of beat and raise quarters.• Infosys had indicated three months ago that company-specific issues would lead to softer December and March quarters.• After significant volatility in 2012, this company is now on a repair path and early signs have been strong• Onsite and offshore realisation rose by 2.2 percent Q-o-Q, however a significant shift to offshore led to a blended rise in realization of only 0.7 percent Q-o-Q. Indeed, if this shift to offshore had not happened, the revenue growth could have been much stronger.• Believe that a combination of reduced onsite costs and higher utilization could take EBIT margins to 27.8 percent (up 280bps from Dec quarter margins of 25 percent) by Dec-2014 quarter
Kotak • Infosys could still end up underperforming peers in Q3FY14 on revenue growth. • Consensus revenue growth estimates are unlikely to change after this performance.• Confidence on margin expansion story could increase.• Could result in 2-4 percent increase in consensus EPS estimate• Our FY2015E EPS of Rs220 (4 percent ahead of consensus) may increase a tad• Management commentary also gives confidence on demand environment.• Retain our positive stance, ADD rating and 12-month forward target price of Rs3900/ share• Key risk to Infosys story is accelerated drain of senior management talent.
Nomura • Cost efficiency drive seems to be playing out at Infosys• fears related to revenue growth which we encountered in our interaction with investors has been proven unfounded• company commentary on next year seems positive with company talking about the next year being exciting.• The three red flags in the result: 1) North America declined by 0.8 percent Q-o-Q. 2) S&M was cut sharply by 90bps q-q, while earlier talks were of G&A rationalization which hasn’t happened. For a company looking at driving better growth this might have to go up again. 3) IMS declined by 3 percent Q-o-Q in this quarter
Posted by Nasrin Sultana
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