LIC hikes stake in Infosys in June quarter

A sharp correction of 4.7 per cent in the benchmark indices from their recent high in May 2013 coupled with proactive steps taken by the company to arrest the decline financial performance has brought back investor interest in information technology (IT) major Infosys.

State-owned Life Insurance Corporation of India (LIC) has acquired equity shares amounting to Rs 1,069 crore (4.38 million shares) in the IT heavyweight Infosys during the quarter ended June 2013, data shows.

LIC, the biggest domestic institutional investor in the equity market, held 5.96 per cent stake in Infosys during the January–March quarter, which has now gone up to 6.72 per cent as of June 30, as per the latest data available with the stock exchanges.

On the other hand, foreign institutional investors (FIIs) trimmed their exposure in the company by almost 1 percentage point to 39.55 per cent in the April–June quarter, data shows. The overseas investors held 40.52 per cent stake during the January–March quarter.

Ray of hope

After touching a 52-week high of Rs 3,010 on 7 Mar 2013, Infosys slipped nearly 27 per cent to around Rs 2,200 levels by April-end as investors dumped the stock post its fourth quarter numbers that revealed a meagre 3.4 per cent year-on-year growth in net profit to Rs 2,394 crore and the revenue forecast of 6–10 per cent for the fiscal year ending March 2014, which was lower than Nasscom’s 12-14 per cent industry growth expectations for the fiscal 2013-14.

However, the recently concluded quarter saw the rupee’s slide against the US Dollar (USD) bring some cheer to the information technology (IT) pack as a whole in an overall subdued market condition, Infosys in particular was back in the reckoning after its co-founder, N R Narayana Murthy returned to the company as executive chairman at a time when the morale of the company’s management is at an all-time low. It also announced a wage hike for employees.

While the S&P BSE Sensex lost 4.74 per cent since its recent high in May this year, Infosys has gained 5.1 per cent as compared to 5 per cent rise in the S&P BSE IT index.

Result expectation

Meanwhile, Infosys is scheduled to report its fourth quarter earnings on Friday, July 12. Analysts expect the company to retain its 6-10 per cent US Dollar revenue growth guidance for FY2014.

“We expect Infosys to retain its FY14F revenue growth guidance of 6-10 per cent. Outlook on margin incorporating tailwinds from renewed focus on commoditized services and recently announced wage hikes, will in our view suggest deterioration before an improvement. Cut in guidance or material dip in Q1EBIT margins below the fourth quarter levels of 23.6 per cent, will be taken negatively, in our view,” suggest Ashwin Mehta and Pinku Pappan of Nomura Equity Research in a report dated July 4.

“The company’ EBITDA (earnings before interest, tax, depreciation and amortization) margin is expected to decline 140 bps quarter-on-quarter due to the impact of wage hikes for the global sales team, ramp-up on deals with low upfront margins and visa cost,” suggest analysts at Kotak Institutional equities in a note.

For the recently concluded quarter, analysts at Motilal Oswal the overall revenue to come in at $1,961 million, implying a growth of 1.2 per cent quarter-on-quarter (q-o-q), including a negative impact from cross currency of 50 bps (basis points). In rupee terms, the revenue growth is expected to come in 5 per cent higher (q-o-q), they say.