Infosys Q4 results: Analysts largely wary on FY18 guidance, remain mixed

Furthermore, it outlined its planned to focus more on local hiring in the US and setting up development and training centres in the country as part of its efforts to tide over visa-related issues.

Analysts largely have maintained their subdued view on the stock due to the weak revenue and disappointing guidance for the next year.

Deutsche Bank maintained its hold rating on the stock with a lowered target price of Rs 970. The brokerage house highlighted that the company’s Q4 was weak, while the guidance was a disappointment, though not conservative.

The research firm has also cut its earnings forecast by 8-9 percent owing to slow growth and a drop in margin.

The company’s FY18 constant currency guidance implies that it is adding incremental revenue of USD 6-80 million per quarter.

The research firm expected Infosys to deliver 7 percent constant currency revenue growth in FY18 with EPS of Rs 61.4. Moreover, the increased dividend payout as well as new appointments are short term measures and does little to mask the frailties in business performance.

Jefferies has a buy call on the stock with a lower target price of Rs 1,100 from Rs 1,220. The global research company too pointed out the lower guidance for FY18 and said that the guidance implies that recovery was still a while away and translates into revenue growth of 6.1-8.1 percent year on year.

Growth could be stable for the firm, but a recovery in growth is not implied in guidance, it said. The downward resetting of EBIT margin band to 23-25 percent is a bigger disappointment, it added.

Bank of America Merrill Lynch has reiterated its neutral rating on the stock with a lower target of Rs 1,000 from Rs 1,050. It cut FY18/19 earnings per share by 8 percent and believes that the consulting segment is likely to remain a drag on FY18 growth.

The company’s cash return announcement is now a key support at current price amid muted earnings growth in FY18. The USD 2 billion buyback/dividend program implies a further yield of 6 percent in FY18.

Goldman Sachs, meanwhile, has reiterated a sell call on the stock with a new target price of Rs 798, thus implying a downside 14 percent.

“Weaker-than-expected guidance by Infosys for FY18 both for revenues and EBIT margins underscore the multiple concerns we earlier highlighted,” the report stated.

It observed that the threat to app services amid a shift to cloud was visible in both pricing deflation and weakness in app service line growth during Q4, and Infosys’ high reliance on H1B visas was visible in an increased onsite mix led by more local hiring in US and higher sub-contracting costs.

Kotak has maintained an add call on the stock and believes that the stock is inexpensive. It has reduced the target price to Rs 1,015.

“Infosys disappointed with miss on quarterly revenues, lower-than-expected revenue growth guidance and reset of operating margin band. Return of excess cash through buyback/dividend, though, is a positive,” it said in its report.

The recent performance of Infosys does reflect slippages in certain areas, induced by either poor execution or ‘distractions’, it added.

Meanwhile, Motilal Oswal too has a buy call with a target price of Rs 1,200. “Its recovery has taken a pause because of unexpected blips through the year,” the report added.

While the guidance implies a gradual pick-up in momentum, lower deal wins in FY17 (USD 3.4 billion; - 10% YoY) and multiple pockets of issues restrict confidence around immediate broad-based recovery, which would be a necessary trigger for valuations, the report added.

The stock has seen weak movements in the past one month, falling nearly 11 percent, while its three-day loss was seen at 4.29 percent. At 13:14 hrs, Infosys was quoting at Rs 925.65, down Rs 5.75, or 0.62 percent on the BSE. It touched an intraday high of Rs 932.35 and an intraday low of Rs 924.50.