Moneycontrol
Apr 15, 2018 12:45 PM IST | Source: Moneycontrol.com

Infosys likely to open flat on Monday; experts see up to 11% upside

Most analysts remains mixed about their outlook on the stock after the company's Q4 results, but see an upside of up to 6-11 percent from the current levels.

Kshitij Anand @kshanand

Infosys, which reported its results for the quarter ended March post market hours on Friday, could open flat with a positive bias on Monday.

The company's Q4 results met the Street's estimates, but its outlook for FY19 has unsettled investors.

Infosys lowered its operating profit margin band to 22-24 percent for FY19, after its net profit declined 28.2 percent sequentially to USD 571 million in Q4 FY18.

The drop in fourth-quarter profit was also because Q3FY18's results included a one-time gain of USD 225 million on account of the conclusion of an advance pricing agreement (APA) with the US Internal Revenue Service.

The company's guidance for annual constant currency revenue growth is at 6-8 percent and for dollar revenue is at 7-9 percent, both in line with market estimates.

However, it revised its EBIT margin guidance downwards to 22-24 percent from 23-25 percent earlier. This will include the impact of revised compensation for FY19.

The management attributed the fall in guidance to rising investments in digital/IPs, increased onsite hiring, and higher S&M (large deal pursuits). The stock could open flat with a positive bias on Monday, and dips, if any, could be used to buy it for the long term.

"Infosys results were in line with expectations. Margins, however, were stronger than expectations (24.7 percent vs expectation of 24.4 percent). The management looked confident for the stronger show in FY19 with revenues growing at 6-8 percent in constant currency terms as against 5.8 percent growth in FY18," Atish Matlawala, Sr Research Analyst, SSJ Finance & Securities told Moneycontrol.

"Margins, however, is expected to be growing at 22-24 percent (lower than FY18). Lower margins are due to higher spending in digital business. Infosys has a track record of delivering more than promised and we expect the same going ahead," he said.

Salil Parekh, Infosys' new CEO, also announced plans to put up subsidiaries Skava and Panaya on sale in the post-results presser. The acquisitions were done under the leadership of his predecessor Vishal Sikka.

Also Read: New Infosys CEO Parekh caps in-line FY18 by reversing Sikka's Panaya, Skava acquisitions

Most analysts remain mixed about their outlook on the stock after the company's Q4 results, but see an upside of up to 6-11 percent from current levels. The stock rose around 15 percent in the last one year.

Infosys' rapid acceleration in digital (26.8 percent of revenue and 7.2 percent CQGR over past 3 quarters) and trajectory of deal wins (12.3 percent YoY and strongest quarterly booking in last 6 quarters) are heartening, especially in view of the turmoil in the boardroom, which now seems far behind, say experts.

HDFC Securities, which has maintained a 'buy' call on Infosys, has put out a target price of Rs 1,300, which translates into an upside of 11 percent from current levels.

"We believe Infosys is set for a revival, as investments are likely to lead on to quality growth. We reiterate our positive stance based on (1) scalability and momentum in large accounts, (2) digital scale (now a USD 2.8bn portfolio), (3) strong outlook for Europe/RoW, (4) recovery in North America BFS ahead, and (5) current valuations at greater than 20 percent discount to TCS," said the report.

The BFSI space grew by 0.1 percent on a QoQ basis in constant currency terms and is expected to pick up going ahead. On the other hand, retail is expected to remain soft in the near term.

"The stock has already rallied in double digits from its lows and I see no reason why it can’t rally another 10-15 percent and if the BFSI space (which remained week this quarter) picks up on the US side with help the stock," Sanjiv Bhasin, EVP-Markets & Corp Affairs, India Infoline told CNBC-TV18 in an interview.

"The other thing to look at is the impact of tax cuts which could result in increased spending towards IT budgets. I see no reason why this stocks can’t scale Rs 1,300 by the end of the year," he said.

Meanwhile, brokerage firm Sharekhan has maintained its 'hold' rating on the stock, with a target price of Rs 1,250, which translates into an upside of 6 percent.

The company's management is hopeful of a pick up in spends by BFSI clients in CY2018, led by a ramp-up in deals in the insurance space and higher digital adoption by clients, it said.

Technical Outlook:

Infosys has entered a consolidation phase and is currently oscillating in a Symmetrical Triangle, following sharp moves in the previous quarters.

A sustained trade above Rs 1,100 this week can take it to the upper end of the pattern placed at Rs 1,185. Moreover, a breakout from the pattern on healthy volumes can extend the up move to Rs 1,250.

However, a close below Rs 1,100 could trigger a correction, which may drag it lower to levels of around Rs 1,020, experts suggested.

"Currently, the stock is trading near the lower end of the range and it seems to be gearing up for a fresh rally. A multi-month rising trendline and a crucial weekly moving average are nearby," Gaurav Ratnaparkhi, Senior Technical Analyst, Sharekhan by BNP Paribas told Moneycontrol.

"Thus this is a high probability level to initiate a fresh long position from trading as well as investment perspective. Hence, the investors can continue to hold on to the stock and can even look to add to the position at the current level," he said.

Ratnaparkhi is of the view that the strategy for traders should be to buy above Rs 1,140, with a stop loss of Rs 1,100, on a closing basis. The initial target on the upside will be Rs 1,200, with the potential to test the all-time high of Rs 1,279.

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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