Stock lost 9% but analysts maintain ‘buy’ on Infosys

Infosys Ltd, on Friday announced their first quarter results which missed analyst expectations.

The share price of Infosys touched an intraday low of Rs 1058.30 per share on the BSE before ending the day at Rs 1072.25 per share, down by 8.81%. See here.

Vishal Sikka, CEO, Infosys, cut revenue guidance for the current fiscal year signalling tough times for the IT major.

Analysts, though, don’t seem too disappointed with the results and the commentary thereafter.

Apurva Prasad and Amit Chandra from HDFC Securities, in a report dated July 16, 2016 said, “Most metrics indicate that the delivery engine is revving up with increased automation, effectiveness of the zero distance program and reduction in sub-contracting.”

HDFC Securities has a ‘buy’ rating on the stock.

The duo believe that Sikka faces real but surmountable challenges. “Strong deal wins, robust execution, top account mining and success in new platforms underpin our confidence. INFY remains the growth leader in the large Indian IT space, buoyed by transformational investments in innovation, delivery and efficiency,” they wrote.

Analysts Vibhor Singhal and Shyamal Dhruve from Phillip Capital Research, in a report dated July 15, 2016 said, “After four quarters of strong performance, Infosys delivered below expected results in this quarter. The miss was largely led by lower revenues in Life-sciences/CPI segments – part of which might be recouped in the coming quarters.”

Phillip Capital, too, has maintained its ‘buy’ rating on the stock.

The two said that the massive selling in the shares after the results were announced was uncalled for. They wrote, “We see the 9% correction in the stock price, post 1QFY17 results, as an extreme reaction.

A miss of $40 million in the quarter, on a base of $10 billion – led to marketcap erosion of $4 billion. We had highlighted this as ‘investor extremism’, rather than ‘activism’.”

CLSA said, “Sharp declines in Life Sciences (down 17% QoQ) and Energy (-8% QoQ) coupled with soft traction in BFSI (1.7% CC QoQ) were the key drags amidst reasonable growth elsewhere.”

It further said, “We question Infosys’s ability to achieve the lower end of guidance after a poor start to the year. Finally, with lower growth, rising attrition and pending staff rewards, margin sustainability appears challenging.”

Even though CLSA has cut share price target for the company, it maintained the ‘outperform’ rating on the stock.

“Reasonable valuations with prospects of acceleration in FY18 keep us at Outperform with a TP cut from Rs1,320 to Rs1,200,” CLSA said.