Infosys plunges 6%; what 5 top foreign brokerages say

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NEW DELHI: Shares of Infosys dropped 6 per cent in Monday’s trade and tested Rs 1,100-level briefly, tracking its American depositary receipt (ADRs) on the New York Stock Exchange that dropped 7.7 per cent to $16.62 per share post the IT major’s march quarter results on Friday.

The stock fell as the company lowered its margin guidance to 22-24 per cent for FY19 from 23-25 per cent in FY18. The company gave FY19 revenue guidance of 6-8 per cent in constant currency terms and 7-9 per cent in dollar terms which just met Street expectation.

Some brokerages have cut the company’s earnings estimate by 2-3 per cent post the quarter numbers. Following the numbers, the stock fell 5.98 per cent to hit a low of Rs 1,099.

The sentiment on the counter also remained weak after a whistleblower, claiming to be an Infosys insider, asked market regulators in India and US to take action against the software major’s board for “its inconsistency” over Panaya. The company acquired application automation programme Panaya and retail ecommerce product Skava for $200 million and $120 million each. On Friday, Infosys said it has put both up for sale and taken a $90 million writedown on Panaya on a standalone basis.

Here’s what top foreign brokerage said on Infosys:

CLSA I Target price (TP) Rs 1,340

The brokerage said that Infosys Q4 revenues were in line, while margins were ahead of expectations. It termed FY19 revenue guidance at 7-9 per cent YoY in dollar terms and 6-8 per cent in CC terms as ‘solid’. Guidance suggests growth acceleration and stable client relationships, it said. Infosys should get back to catching up with peer growth rates, it said.

The stock “offers the highest potential for a rerating in sector,” it said.

HSBC I TP Rs 1,230 (from Rs 1,275)

Brokerage values the stock at an unchanged 18 times its 12-month forward earnings (FY19e). It has cut EPS estimate for the IT firm due to lower other income. Its target price factor is $2 billion of incremental dividend in FY19e. The stock now offers 8 per cent yield FY19e, it noted.

Nomura India I TP Rs 1,300

Large segments remained sluggish, Nomura India said, adding that the margin outlook for the IT firm has weakened. This brokerage expects Street expectations to moderate and, thus, maintained ‘Reduce’ and raised the target to Rs 1,020 from Rs 990.

Jefferies I TP Rs 1,340

This brokerage believes Infosys’ risk-reward look favorable. Margin guidance cut was the key disappointment, it said. Expect the new CEO to focus more on services compared with products, and on execution. It has maintained ‘buy’ on the stock with target of Rs 1,340.

CITI I Rs 1,195

This brokerage has maintained its neutral stance on the stock. Margin guidance surprised negatively, it said. It also noted that the commentary on financial services segment commentary was weaker than what it has been in the recent past

Comments about certain clients showing some weakness, the brokerage said while reducing its EBIT estimates for FY19E/FY20E by 2 per cent.

Source: Economic Times