Infosys cuts FY19 EBIT margin guidance; stock dips 6%

The stock dipped 6% to Rs 1,099 on the BSE in opening deal after IT major said its EBIT will grew 22-24% for FY19 as compared to 24.3% achieved in FY18.

Infosys has dipped 6% to Rs 1,099 on the BSE in opening deals on profit booking after the information technology (IT) major said its earnings before interest and tax (EBIT) will grew 22-24% for 2018-19 (FY19) as compared to 24.3% achieved in FY18.

At 09:26 am; the stock recovered from its early morning low and was trading 3.7% lower at Rs 1,126, as compared to 0.23% decline in the S&P BSE Sensex.

Thus far in the calendar year 2018, Infosys had outperformed the market by surging 12% against a marginal 0.4% rise in the benchmark index till Friday.

Infosys said while announcing its Q4FY18 results in post market hours on Friday that it expects revenue for FY19 to grow in the range of 6-8% in constant currency (CC) terms and 7-9% in US dollar terms.

“FY19 CC revenue guidance at 6%-8% came in line with street estimates however 100bps lowering of the EBIT margin range to 22%-24% came as a negative surprise”, analysts at Antique Stock Broking said in result review.

“We believe all these measures are needed to drive future growth and change the business model as per the evolving dynamics. We believe that the EBIT margin guidance is conservative as it implies a 170bps decline from the 24.7% margins reported in 4QFY18”, the brokerage firm said.

Meanwhile, Infosys reported net profit of Rs 36.90 million for January-March quarter (Q4FY18), which were in line with Street’s expectation. The company posted net profit of Rs 36.03 billion in the same quarter last fiscal. It had profit of Rs 59.29 billion in December quarter.

Revenues of the company grew 5.6% to Rs 180.83 billion in the January-March quarter compared with Rs 171.20 billion in the year-ago period. EBIT (earnings before interest and tax) margins at 24.7% were 40bps ahead of consensus estimates.

Continued sluggishness in US BFS markets, modest FY18 growth of 5.8% in CC terms, soft Q4FY18 exit growth of 0.6%, weak deal TCVs (down 12%) and decline of 1.5% in Top 10 clients in FY18 make us believe that Infosys would achieve growth closer to the lower end of its guidance range of 6-8%, analysts at Emkay Global Financial Services said in result update.

Frequent leadership changes and conservative investments in future technologies have impacted the business momentum, analysts at Emkay said in a note. The new strategic roadmap, they believe, may help it to improve growth but may continue to put pressure on profitability (due to sales, onsite spends) in the absence of margins levers.