IT major Infosys has signed an Advance Pricing Agreement (APA) with the US revenue department, which will result in reversal of tax provisions of about USD 225 million. The stock gained nearly 1 percent to hit a fresh high of Rs 1,050.
The reversal of the tax provisions will have a positive impact on its consolidated basic earnings per share (EPS) for the December, 2017 quarter by approximately USD 0.10, Infosys said in a statement.
"In accordance with the APA, the company expects to reverse tax provisions of approximately USD 225 million made in previous periods which are no longer required (both under International Financial Reporting Standards and Indian Accounting Standards)," it added.
Under the APA, Infosys and the US Internal Revenue Service have agreed on the methodology to allocate revenues and compute the taxable income of the company's US operations, it said adding that the agreement covers financial years from 2011 to 2021.
Infosys said it expects its overall effective tax rate to be lower by about 100 basis points for future periods covered under the APA. This amount is expected to be paid over the next few quarters, it added.
Analysts were mixed in their ratings but were positive after Advance Pricing Agreement with the US revenue department.
Brokerage: Credit Suisse | Rating - Neutral | Target - Rs 1,000
Effective tax rates will come down by 100 bps till FY21 and should add over 1 percent to earnings, Credit Suisse said while maintaining its neutral call on the stock with a target price of Rs 1,000 per share.
"We do not see advanced pricing agreement to have material impact on stock price. Agreement does remove uncertainty for the next three years," it said.
Brokerage: Quant | Rating - Reduce | Target - Rs 920
Quant said the US IRS agreement until 2021 will reduce tax rates & uncertainty for the company.
While having Reduce call on the stock with a target price at Rs 920 per share, the research house said Infosys benefits to the tune of USD 270 million in P&L over four calendar years and sacrifices USD 233 million of cash in the near-term.
"We do not consider US IRS agreement to be price sensitive," it said.
Brokerage: Motilal Oswal | Rating - Buy | Target - Rs 1,200
While maintaining Buy call on Infosys with a target price at Rs 1,200 per share, Motilal Oswal said US IRS agreement would drive EPS higher by Rs 6.70 (10.4 percent on FY18e base).
The research house sees a marginal upgrade of 1.4 percent to our future earnings estimates and expects dollar revenue CAGR of 8 percent & EPS CAGR of 7.1 percent over FY17-20.
"We do not expect company’s performance to lag peers materially," the research house said.
Brokerage: Morgan Stanley | Rating - Equalweight | Target - Rs 1,028
Morgan Stanley feels APA with US Internal Revenue Service could positively impact FY19/20 EPS by up to 1 percent. The research house has Equalweight rating on the stock with target at Rs 1,028 per share.
The tax rate guidance of 28-29 percent will decline to 27-28 percent, it said.
Brokerage: Kotak Securities
Kotak Securities said the rationale of US IRS agreement is to enhance predictability of tax obligations for US operations. Agreement does not have any implications for other companies, it added.
Brokerage: Axis Capital
"APA agreement is positive for Infosys and we see positive impact on earnings by 5 percent between current quarter to December 2022," Axis Capital said.
Agreement will improve predictability of tax outflow and new agreement will clear the ambiguity around the base erosion anti-abuse tax, it added.
At 14:06 hours IST, the stock price was quoting at Rs 1,047.75, up Rs 6.45, or 0.62 percent on the BSE.
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