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  1. Here’s why brokerages are bullish on Infosys’ shares despite lower FY19 guidance

Here’s why brokerages are bullish on Infosys’ shares despite lower FY19 guidance

After IT behemoth Infosys declared results for the quarter ended March-18, most brokerages have maintained a buy rating on the shares despite the company lowering its EBIT margin guidance for FY-19.

By: | Published: April 16, 2018 9:19 AM
Infosys, Infosys shares, Paris, Euronext london, euronext paris While brokerages have said that the lowering of margins is a disappointment, they point out to other major positives even as they retain a buy on the shares of Infosys. (Image: PTI)

After IT behemoth Infosys declared results for the quarter ended March-18, most brokerages have maintained a buy rating on the shares despite the company lowering its EBIT margin guidance for FY-19. The results assume further significance, as it is the first quarter after Salil Parekh took over as the CEO of the company after Vishal Sikka’s controversial exit. Notably, the profits up  2.4% on year to Rs 3,690 crore are seen to be largely in line with estimates. Notably, the company has lowered EBIT margin guidance for FY19 to 22-24 per cent from 23-25 per cent for the previous fiscal.

While brokerages have said that the lowering of margins is a disappointment, they point out to other major positives even as they retain a buy on the shares of Infosys. Global firm CLSA notes that Infosys’ results were in line with estimates on revenues, but ahead in terms of margins. Further, the firm said that a 1% cut to FY19 margin guidance implies an investment of $170 million for catching up on digital capacity, sales coverage, US hiring, generous variable pay and wage hikes brought forward.

Further, the firm observed that Infosys’s guidance suggests growth acceleration and stable client relationships. CLSA has a buy rating with a target price of Rs 1,340. Infosys shares closed at Rs 1,099 on Friday. CLSA’s target price implies an upside of more than 21% from the current market prices.

According to Edelweiss, Infosys’ lower margin guidance and softer-than-expected commentary is likely to be perceived in a negative way by the stock market participants. Accordingly, the firm has cut FY19 and FY20 EPS estimate by 0.7 per cent and 4.2 per cent respectively as investments in building sales and digital capabilities will lead to margin dilution. However, the brokerage has maintained a buy on the stock, citing digital-focused strategy, undemanding valuations and high dividend yield. Global brokerage firm CITI said that EBIT margin guidance of 22-24% is a negative surprise. The firm has revised down FY19-20 EBIT estimates by 2%. CITI has a target price of Rs 1,195 on Infosys.

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