1. Why these 5 brokerages are bullish on Infosys post Q3 results

Why these 5 brokerages are bullish on Infosys post Q3 results

Infosys has surpassed India’s largest IT company, TCS, for the first time in last five years in terms of forward valuations as the the Vishal Sikka-led IT major posted strong Q3FY16 earnings in contrast to TCS.

By: | Updated: January 15, 2016 5:36 PM
Infosys-PTI660

Infosys posted 6.6 per cent year-on-year (yoy) and 1.97 per cent quarter-on-quarter (qoq) growth in its consolidated net profit figures to Rs 3,465 crore for the quarter ended December 2015. (Photo: PTI)

Contrary to expectations, Infosys, the second-largest software exporter by revenue, delivered a robust Q3 numbers on Thursday. The IT major posted 6.6 per cent year-on-year (yoy) and 1.97 per cent quarter-on-quarter (qoq) growth in its consolidated net profit figures to Rs 3,465 crore for the quarter ended December 2015. The company earned Rs 3,250 crore in the corresponding quarter a year ago.

Analysts on average had expected a net profit of Rs 3,353 crore, according to a data compiled by Thomson Reuters.

Consolidated revenue of Infosys jumped 15.26 per cent yoy and 1.70 per cent qoq to Rs 15,902 crore. Operating profit of the company fell marginally to Rs 3,959 crore for the quarter ended December 2015 from Rs 3,993 crore in the sequential quarter ended September 2015. The company posted operating profit of Rs 3,689 crore in the corresponding quarter a year ago.

Infosys has surpassed India’s largest IT company, TCS, for the first time in last five years in terms of forward valuations as the the Vishal Sikka-led IT major posted strong Q3FY16 earnings in contrast to TCS, whose earnings have failed to meet the street expectations for the sixth quarter in a row.

IT major Infosys scrip later closed 1.02 per cent up at Rs 1140.20

Infosys is looking confident on the future prospects as it raised its annual revenue growth forecast due to stronger demand for high-margin automation and other services. The IT major, which counts Apple, Volkswagen and Wal-mart Stores among its clients, raised its sales growth view for the year through March 31, 2016 to a band of 12.8 per cent to 13.2 per cent from the 10-12 per cent it guided in October.

Below are comments from 5 brokerage houses after Infosys Q3 results:

Sharekhan: For three back-to-back quarters now, with a strong show in Q3FY2016, Infosys has beaten earnings estimates. Even in a seasonally weak quarter coupled with Chennai flood, Infosys managed to deliver a 3.1 per cent sequential volume growth and constant-currency growth of 2.1 per cent QoQ (adjusted for $23 million one-off from termination of IMS deal in Q2FY2016). The management of Infosys remained upbeat on growth prospects due to strong volume growth in Q3FY2016 coupled with strong deal wins and healthy deals pipeline. Given the Infosys’s growth leadership among the top four listed peers and surpassing TCS’s growth rate convincingly, Sharekhan expects valuation re-rating for Infosys to continue. The brokerage house revised its target price upward to Rs 1,430 post Q3 results.

Nomura: The Japanese brokerage house expects Infosys to trade at a premium to TCS given the likely dollar revenue growth outperformance at 11.7 per cent and 11.4 per cent in 2016-17 and 2017-18F (vs. 9.3%/10.2% for TCS). Nomura raised the target price for Infosys shares to 1,270 from Rs 1,225, which is based on an unchanged multiple of 18x one-year forward EPS of Rs 70.4 (up to Dec-17F).

Religare Securities: Overall, Q3FY16 was a good quarter for Infosys despite multiple headwinds such as higher furloughs, the Chennai flood impact. Post results, Religare marginally raised EPS estimates (1-2%) and believes the share price of the company can hit Rs 1,300 by March 2017.

Angel Broking: Infosys posted better-than-anticipated results for the quarter ended December 2015. Management is bullish about the future prospects due to strong order book position. Angel Broking maintains ‘buy’ rating on Infosys shares post Q3 numbers.

JM Financial: Infosys would exit FY16 with at-least $ 2.8 billion TCV fresh order book (a 45 per cent increase over FY15), as per JM Financial estimates. This places it on track for 12-13 per cent dollar reported revenue growth over FY17-18, even adjusting for potential cross-currency headwinds (-40bps at 3QFY16 close). While pricing aggression is an oft cited concern, a tightly controlled cost structure and rupee depreciation should keep the EBIT margins in 24 per cent-26 per cent. JM Financial in a research report said, “We maintain ‘Buy’ on Infosys with price target of Rs 1,310 (Rs 1,290 earlier).”

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