Should you buy Infosys post Q2FY16 results?

After rallying over 2% in morning deals, Infosys slipped nearly 3.5% to Rs 1,127 levels after the company announced a 9.8% year – on - year (y-o-y) jump in its consolidated net profit for the quarter ended September 2015 at Rs 3,398 crore.

The stock hit a low of Rs 1,108 in intra-day deals post the result announcement on the Bombay Stock Exchange (BSE). By comparison, the S&P BSE Sensex was trading 0.2%, or 49 points, higher at 27,128 levels.

Revenue during the recent concluded quarter came in at Rs 15,635 crore, which is 17.2% higher as compared to the previous corresponding period. This, too, is ahead of most estimates that pegged the y-o-y increase at around 14.2% in the recently concluded quarter.

On an average, analysts pegged the sequential rupee revenue growth at 6.2%, aided by healthy client mining. CLICK HERE FOR THE DETAILED STORY

Though Infosys has maintained the FY16 revenue guidance at 10% – 12% in constant currency terms, the guidance in USD terms has been slashed to 6.4% - 8.4% from 7.2% - 9.2%.

“We expect USD constant currency revenue growth of 4% q-o-q, 90 basis point (bps) q-o-q EBITDA margin increase and a q-o-q rise of 7% in net profit,” points out a Nomura report.

Also Read: Infy declines on cutting FY16 dollar revenue guidance

So should you use the weakness to buy the stock or should you look for better bets given the revised guidance?

Says Ajay Bodke, CEO & chief portfolio manager – PMS at Prabhudas Lilladher Group: “The positives in the medium term outweigh the slight disappointment on the marginal reduction of dollar guidance for FY16. The fact that Infosys has achieved a strong in revenues (dollar terms) on quarter – on quarter (q-o-q) basis, the constant currency guidance for FY16 has also been kept unchanged. There has been an improvement in almost all the other metrics, and this should provide a strong downside support to the stock.”

“The weakness should be utilised as an opportunity to buy the stock from a medium-term perspective. I believe that Infosys remains committed to the vision laid out by Dr Vishal Sikka a few quarters ago,” he adds.

G. Chokkalingam, Founder & Managing Director, Equinomics Research & Advisory, however, suggests that days of wealth creation for large information technology (IT) companies like Infosys are over, and at best they remain defensive plays in a volatile market.

“The initial euphoria seen in the stock was due to the rise in profits. However, the guidance came in as a disappointment and this suggests that the second half of the financial year may not be great for the company. The base effect for most large IT firms coupled with the economic slowdown, I feel that these companies will not be able to create substantial wealth for shareholders. Infosys, at best, will remain as a defensive bet. The guidance by Infosys is less than the Nasscom’s guidance of around 12% growth.

“I neither foresee a strong double-digit growth in revenue for these IT companies nor an upgrade in the PE (price-earnings) multiple going ahead. Wealth creation story for Infosys is over,” he adds.

“The company posted results better than expected on top-line and net profit, whereas the EBIT margins came in just in line with expectations. The revision in the USD guidance, is mainly on the outlook of the company on the currency front. Infosys has also mentioned that it expects H2FY16 is weaker than H1FY16, and also that it is witnessing headwinds in some client accounts. We maintain our accumulate rating on the stock with a target price of Rs 1,306," says Sarabjit Kour Nangra, vice-president for IT research at Angel Broking in a note.