Angel Broking expects further derating of Infosys stock

After the disappointing first quarter results from Infosys, Ankita Somani, Telecom Analyst at Angel Broking said there is bound to be further derating of the stock. In an interview with CNBC-TV18, Somani said that the 5% growth guidance given by Infosys for FY13 is quite tepid and is lower than the expected 6-8%.

Due to restructuring issues in another IT major Wipro, Somani does not expect the company to post very good results in Q1. However, she feels the result will obviously be better than Infosys. Below is the edited transcript of the interview on CNBC-TV18.   Q: Do you think now that you are going to see a seminal lowering of valuations for Infosys with the management even shying away from giving you the next quarter's guidance?
A: Definitely. We have seen some kind of a lowering in terms of the valuations of Infosys because the guidance that they have given of 5% for FY2013 is tepid. We were expecting a cut in the guidance but, we were expecting it to be 6-8%.
So 5% is not what we were expecting, it is much lower than what we expect industry to grow at. In fact the peers of Infosys are also expected to grow faster. We will definitely see further derating of this stock. Q: It is TCS which comes out with numbers as well but before we get to that it is only Infosys and Wipro which have shown a 9-10% in the past month in terms of a decline of stock price. What are you factoring in for Wipro in terms of numbers and why are we seeing so much of pressure on the stock?
A: Wipro has got its own company specific issues. The company went through restructuring since the past year and they are still in the process of realigning the capabilities. For this quarter, we don't expect Wipro to post good results.
The results are expected to be muted. We expect about 0.5% kind of dollar revenue growth for Wipro this quarter in constant currency terms. For this quarter, I don't expect Wipro to perform well but from the quarters coming ahead, as soon as the restructuring starts yielding fruit, we expect Wipro to again perform, at least better than Infosys. Q: How are you reading the Infosys numbers, as a company specific problem or as an industry related problem?
A: Industry wise definitely there is a problem but, Infosys as such from the management's point of view, we are definitely seeing that the visibility is challenged right now in terms of projects ramp ups and the delays that they are seeing. Most of it is due to the exposure that Infosys has in developed economies. Companies like TCS has expanded the footprints in emerging economies.
That is where I guess Infosys is lagging and also they have their margin preservance going on and they will not compromise on the margins. That is something which is hampering this stock. Q: What are you expecting from TCS?
A: We are expecting it to perform much better than Infosys. We are expecting about 3-3.5% kind of dollar revenue growth in constant currency and about 3% in the actually reported currency terms. Definitely, the margins are expected to decline slightly by 20-25 bps because they have wage hikes in this quarter. But, we expect TCS to lead in tier-I IT pack.