Infosys Q2 results: Should you buy the stock now?

Infosys, which surpassed expectations by announcing a 1:1 bonus issue and its financial performance with a net profit of Rs 3,096 crore in the September quarter, has seen heavy buying at the bourses. In noon deals, the stock is trading nearly 7% higher at Rs 3,900 levels.

In report dated 7 October, Surendra Goyal and Rishi V Iyer of Citi Research downgraded Infosys to "neutral". For the September quarter, they expected Infosys to deliver ~3.2% q-o-q revenue growth, decent in the context of the volatility the company has faced in the past many quarters.

"The upper end of the FY guidance may be revised lower given the cross-currency movements. We expect margins to improve ~80 bps due to INR depreciation and lower visa costs qoq. Comments on any strategic changes by the new CEO would be a key investor focus," their report said.

However, the September quarter results have surprised most. Given this backdrop, is it a good time to buy the stock? Here is what the top brokerages and research houses suggest:


Prabhudas Lilladher

Infosys Q2FY15 results were again mixed?bag with revenue in?line and margin ahead of Prabhudas Lilladhar's estimates/Consensus expectation. The management has retained its guidance for FY15 USD revenue growth at 7?9% implying CQGR of 1.4?3.8%. We see stock price uptick of 4?6%. We expect consensus earnings upgrade post Q2FY15 conference call. The company’s has approved 1:1 bonus issues (Applicable for ADR). The company has announced interim dividend of Rs 30/share.

Barclays

Going beyond quarterly noise, we believe that management's strategic outlook will be important. Specifically, we look for a confirmation of management's earlier view that revenue growth should return back to the industry level in FY16 (as per management’s earlier three-year plan). Details around the changes in sales force, the new go-to-market strategy and focus on SMAC space are the key ingredients of the recovery in revenue growth, in our view.

Infosys also announced a dividend of Rs30 and a bonus stock issue at a 1:1 ratio. However, the company still has $5.5 billion in cash and we would prefer a comprehensive capital allocation strategy from management. We maintain our overweight rating with a price target of Rs 3,800.

Angel Broking

On valuation front, the stock is cheap at current valuations of 15.5xFY2016E earnings, at a 30% discount to its peer like TCS, which we believe can narrow down once the growth pick-ups. Thus , we maintain our buy rating on the stock with a target price of Rs 4,700.

Emkay Global

Stock has reacted positively to the strong operational performance as expected.  Street and investors will hope that the consistency shown in Spe’14 quarter results continues and the misses that one saw through the past few years is a thing of the past. We would be monitoring Infosys’s management’s commentary on strategy to balance priorities between the traditional business and newer technology areas. Infosys’s margin improvement in the current quarter despite an increase in S&M expenses to 5.8% is a big positive in our view. We currently have BUY recommendation on Infosys with a target price of Rs 4,000 and we see marginal increases in our FY15/16E earnings of around Rs 211/237.