Brokerages maintained their view on Infosys Ltd after the information technology major reported June quarter numbers that matched analysts’ estimates.
Infosys’ margin performance and its ability to maintain the full-year constant currency guidance impressed brokerages.
Here’s more from the initial analysis of some of the brokerages.
‘Solid Contribution’ From New Services
Kotak Securities Ltd said that Infosys’ EBIT margins outperformed their expectations despite the 60 basis point sequential drop. The brokerage said that margins held up despite headwinds because of two factors:
- 200 basis point sequential increase in utilisation rate.
- Benefits of automation as reflected in the 0.6 percent onsite and 2 percent increase in offshore constant currency realisation.
The growing contribution from new service offerings was another positive, according to Kotak. Services started after 1 April 2015 contributed 10 percent to overall revenues.
We highlight that the revenue contribution is not based on any reclassification of old revenues streams and should not be confused with the contribution to overall revenues from digital offerings.Kotak Securities Note To Clients
Kotak said that the change initiated by Chief Executive Officer Vishal Sikka are in the right direction, but added that they expect 2 percent cut in FY18-19 earnings based on the change in rupee estimates.
The brokerage maintained its ‘Add’ rating on the stock and left its target price unchanged at Rs 1,015 per share.
Earnings Upgrade Likely
Infosys’ stronger-than-expected June quarter performance will prompt a consensus earnings per share upgrade of between 2 percent to 4 percent over the current and next financial years, according to IDFC Securities Ltd.
Infosys’ guidance implies growth of between 2.04 percent to 3.28 percent sequentially, for the remaining quarters of the current financial year, IDFC Securities added in its note to clients.
The guidance implies steady ramp-up of recently signed large deals.IDFC Securities Note To Clients
IDFC retained 'Outperform' rating on the stock with target price of Rs 1,150.
‘Pricing Gains Not Sustainable’
Emkay Global Financial Services Ltd said that though the numbers are better than expected, there is little scope for major positives on an annual basis.
There has been no uptick on constant currency guidance despite better performance which indicates that the pricing gains are not sustainable, the brokerage wrote in its first cut note to clients.
Profitability would see a downtick in the coming quarter on lower sequential growth, wage hikes, and rupee appreciation, according to Emkay.
The brokerage maintained its 'Accumulate' rating on the stock, with the target price of Rs 1,000.
The 12-month price target on the Infosys stock is Rs 1,065, according to the consensus of 54 analysts tracked by Bloomberg. 74 percent of those analysts have a ‘Buy’ rating on the stock.
The stock rose 2.8 percent in the past month, compared with the 2.7 percent advance in the S&P BSE Sensex Index.
(This article was originally published on BloombergQuint)
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