Infosys declines 4% on profit-booking by investors post Q2 results

Analysts are surprised by the fact that Infosys did not raise the revenue guidance at the upper end despite the confidence of strong order booking

Shares of Infosys dipped 4 per cent to Rs 781 in morning deals on the BSE on Monday as investors took to profit booking after the company reported September quarter (Q2FY20) results broadly in-line with the analysts expectations. Further, investors turned cautious as a stable guidance likely implies soft second half (October-March) or H2.

For the period under review, Infosys' revenue growth was tad lower than what analysts had forecast. It, however, outperformed on the margin front and reported an Ebit (earnings before interest and tax) margin of 21.7 per cent, a rise of 120 basis points (bps). Analysts had pegged the increase at 100 bps. CLICK HERE TO READ FULL REPORT

Thus far in the calendar year 2019, Infosys has outperformed the market by surging 24 per cent, as compared to a 6 per cent rise in the S&P BSE Sensex till Friday.

Infosys now expects its revenue to grow at 9-10 per cent in 2019-20 (FY20) as against 8.5-10 per cent it had expected earlier.

“A 3.3 per cent quarter on quarter (QoQ) constant currency (CC) revenue growth with 120 bps improvement in operating margins sequentially keeps the faith alive on Infosys’s recovery through FY20. Though we are surprised by the fact that Infosys did not raise the revenue guidance at the upper end despite the confidence of strong order booking as well as H1FY20 revenue performance,” analysts at Emkay Global Financial Services said in result update with ‘hold’ rating on the stock.

“We believe that no uptick in growth guidance implies that the year’s organic growth would be about 8 per cent-9 per cent and is not better than peers (TCS/HCL Technologies). No material change in our estimates and sharp rally post Q1 (PE now at 19.5x FY21E) leave no room for further upside. We now believe that stock performance in the next few quarters would depend on Infosys’s ability to recover lost profitability,” analysts at Dolat Capital said in a report.

Meanwhile, analysts at Elara Capital believe that retaining the top-end of the guidance suggests low H2 visibility. "However, margin expansion was better than expectation and sustaining the same in H2 could result in earnings upgrades," the brokerage firm said in quarterly update.

At 11:14 am, Infosys was trading 3 per cent lower at Rs 792 on the BSE, as compared to a 0.57 per cent rise in the S&P BSE Sensex. A combined 6.9 million shares have changed hands on the counter on the NSE and BSE so far.