Infosys Shares: Infosys Ltd shares tanked over 9 per cent on Monday after many analysts cut its margin estimates over its weaker-than-expected earnings for the March quarter. At 9 per cent, Infosys had its biggest fall in the market since March 23, 2020. The stock touched a low of Rs 1,592 a share on Monday. At 9.30am, the scrip was trading at Rs 1,642 on the BSE, down 7 per cent from its previous close.
Last week, Infosys reported revenue growth of 1.2 per cent on-quarter in constant currency terms due to contractual client provisions impact and less number of calendar working days.
Infosys margin was down by 193 basis points QoQ at 21.6 per cent largely due to lower working days (160bps), contractual client provision (60bps) partially negated by pyramid optimisation.
The lower margin was due to higher than expected pass-through costs (90bps margin hit), higher employee costs (30bps margin hit), rise in travel costs (30bps margin hit). The company’s management highlighted that while quarterly annualised attrition is down 5 percentage points in the fourth quarter, wage hikes in FY23 may be competitive and higher than last year particularly overseas.
Commenting on the March quarter results, Motilal Oswal Securities in a note to investors, said: “Infosys posted weak earnings with slow growth and a meaningful dip in the margin. Though growth in the quarter was muted, demand remains intact and the order book remains strong. The management’s FY23 growth guidance and high headcount addition provide further visibility on demand.”
Brokerage firm ICICI Securities expect, going forward, the headwinds on margins are: an increase in travel, facility, and communication expenses; higher onsite/offsite wage revision; and declining employee utilisation rates.
“We believe there will be at least 5-7 percent of EPS cut in consensus estimates led by lowering revenue growth/margin forecasts. We do believe Infy is well-positioned to gain market share and is suitably equipped for industry-leading growth. However, elevated margin pressures along with slowing revenue / TCV momentum in tandem with the macro environment lead us to retain our REDUCE rating,” ICICI Securities report added.
Should You Buy, Sell or Hold the Stock Post the Q4 Results?
Brokerage firm Ekmay Global said: “We cut FY23/FY24 estimates by 7.2 per cent/4.9 per cent, factoring in the Q4 miss and lower margin guidance. The operating performance miss would weigh on the stock in the near term.” We maintain Buy with a revised target price of Rs 1,970 at 28x Mar’24E EPS, considering broad-based demand, steady market share gain, and robust cash generation, the brokerage said in a note.
Broking firm Sharekhan recommends buying the IT stock because of its strong digital competencies, healthy capital allocation policy and prudent investments in capabilities that will be required in future. “Hence, we believe any correction in the stock price would offer good investment opportunity from a long-term perspective. Hence, we maintain a Buy rating on the stock with a revised price target of Rs. 2,150,” the brokerage said.
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