Top ten brokerage views on Infosys post Q4 results

NEW DELHI: Infosys started fiscal 2014 on a dismal note as the stock came under considerable selling pressure after the company declared its January-March quarterly results last week.

After plunging over 21 per cent on Friday, investors dumped Infosys stock as sentiment turned bearish on lower-than-expected revenue growth for the current fiscal.

The most disappointing thing in the results was a dollar revenue guidance of 6-10 per cent for FY2014, which is way below the street’s expectation of 12-13 per cent.

The BSE IT index surged over 20 per cent in the Jan-March period while Infosys managed to gain nearly 25 per cent in the same period ahead of its results.

But after a steep cut on Friday, Infosys erased all its gains made in the calendar year 2013 and is down nearly 4 per cent so far in the year 2013, as of data collected on April 15.

The range of the guidance is wide which indicates the volatility foreseen by the management, say analysts. Also, the company has not put out any EPS guidance for FY2014, which could signify that there is risk towards the operating margin profile going ahead.

Most brokerages have lowered their price target on the stock on growth and margin concerns after conference call with the management.

Analysts say the fall in margins is a concern, especially in the absence of revenue growth and has cut FY14-15 EPS estimates by 8-9 per cent. Most of them advise investors to consider TCS and HCL Technology in the IT sector.

We have collated views and recommendations from various brokerages on Infosys stock post Q4 results:

CLSA: Maintains outperform, TP Rs 2650 from Rs 3100

The pain for Infosys may not be over as it is hard to find any positive from the March quarter earnings. The key hurdle for Infosys is not the poor set of results but massive downgrade reset of margins which will weigh on future earnings, CLSA said in a note on Friday.

Asia Pacific-focused broker CLSA retained ‘outperform’ rating on the stock, but cautioned that the stock could be ‘dead money’ for quite some time. The brokerage slashed its 12-month target price from Rs 3100 earlier to Rs 2650 post the results.

JPMorgan: Maintains overweight, TP cut to Rs 2700 from 3200 earlier

Worst fear of investors are coming true as below expectation results and disappointing guidance does not augur well for the stock. However, it looks like stock correction post results are overdone.

Continue to believe that the demand environment is improving and forecast USD FY14 revenue growth at near the upper-end of guidance band.

Credit Suisse: Maintains neutral, TP cut to Rs 2450 from Rs 3110 earlier

Fall in margins is a concern, especially in absence of revenue growth. We have slashed FY14-15 EPS estimates by about 8-9 per cent to reflect lower revenue growth and margins. However, we continue to prefer TCS and HCL Tech in the IT sector.

UBS: Maintains Buy, TP Rs 3350

Higher end of revenue guidance could be met but margins are the key to re-rating of the stock. We expect the valuation gap with TCS to remain wider. The stock is likely to languish at the current level until earnings visibility improves.