No Infosys target price cut by brokerages, but issue may impact ‘contract wins’

Shares of Infosys are likely to be under a cloud of uncertainty till clarity emerges on the investigation on whistleblower allegations against the company, said brokerages, with one report saying that the stock could get de-rated. Macquarie said any significant change in sales strategy and top management could create uncertainty around growth. So far, none of the brokerages have cut estimates on Infosys after the allegations came to light but they believe the issue could affect large contract wins going ahead. Here’s what brokerages are saying:

CREDIT SUISSE

Rating: Underperform


Target Price: Rs 720

• Resignation of Deputy CFO last week will raise questions around the timing

• Whether proven or not, these allegations can lead to lot of potential uncertainty for Infosys

• Such issues eat significantly into management bandwidth which may have a bearing on growth and execution

MORGAN STANLEY

Rating: Equal-weight

Target Price: Rs 805

• Whistleblower complaint comes as a setback for the company

• The complaint issue could de-rate multiples, until clarity emerges

• Recent September quarter results were slightly disappointing as growth in BFSI and retail segment were soft

UBS

Rating: Neutral

Target Price: Rs 900

• Allegations are likely to cast a shadow on the large contract wins in the last few quarters

• Expect Infosys’ valuation discount against TCS to widen till clarity emerges on the issue

• Demand sluggishness, likely seasonal weakness in the second half of FY20 also likely to weigh on valuations

MACQUARIE

Rating: Outperform

Target Price: Rs 830

• Investors should watch out critically for the outcome of the investigations

• Any significant change in sales strategy, top management could increase uncertainty around growth

• No change in estimates pending further update on the matter

EDELWEISS

Rating: Buy

Target Price: Rs 955

• While the allegations are serious, they don’t directly impact the business

• Allegations don’t include charges related to violation of law in client markets or data security issues, which could have serious business impact

• Any aggressive fall should be used as an opportunity to add from a long-term perspective

JEFFERIES

Rating: Buy

Target Price: Rs 915

• Issue is likely to remain an overhang pending further clarity

• Every 100 basis points lower EBIT margin impacts FY20/21 estimated EPS by 4.3%; P/E derating could be the bigger risk