Information-technology major Infosys' January-March quarter numbers, announced on Friday, were in line with analysts' expectation. Despite this, they say the stock might come under pressure in Monday's trading session. The first reason is the feeble performance of Infosys' banking, financial services and insurance (BFSI) segment, almost no revenue growth sequentially in constant currency terms. Retail and life sciences revenue down 0.7 per cent sequentially in constant currency terms; contribute 55 per cent to its revenue. While the management expects BFSI to improve in 2018-19, the retail (along with consulting) segment is likely to remain under pressure.
Second, though Infosys' 2018-19 revenue growth forecast of 6-8 per cent in constant currency terms was at par with expectation, its earnings before interest, tax, depreciation and amortisation (Ebitda) margin forecast of 22-24 per cent was below the current level. This comes in spite of a contraction in Ebitda margin, witnessed in the past four years.
The main reason for the lower margin guidance is investments in the digital business. Increased focus on high-yield business will benefit the company. But, the lower guidance has led to some analysts being sceptical of Chief Executive Officer (CEO) Salil Parekh's confidence. "While lowering the Ebit margin may disappoint investors in the near term, we view it as a medium-term revenue accelerator," says Abhishek Bhandari, analyst at Macquarie Research. According to Emkay's latest report on Infosys, the weak profitability expectation at 22-24 per cent suggests the new CEO's low confidence in the company's current capabilities. Many analysts said Infosys' capital allocation steps would support the stock price in the near term.