Is it wise to buy Infosys shares post Q4 result? Heres what experts believe

Infosys share price witnessed heavy selling pressure from investors on Monday's trading session, despite the IT giant posting a positive Q4FY19 result. At around 0958 hours, the Infosys stock was trading at Rs 728.40 per piece down by Rs 19.45 or 2.60%. However, within few minutes of opening session, the shares have already touched an intraday low of Rs 713.70 per piece on Sensex, resulting in overall drop of nearly 5%. Infosys posted a consolidated net profit of Rs 4,078 crore in Q4FY19, higher compared to profit of Rs 3,610 crore in Q3FY19 and Rs 3,690 crore in Q4FY18. On yearly basis, PAT rose by over 10.51%. Further, the IT-major's revenue from operation came in at Rs 21,539 crore for the latest quarter, gradually up from Rs 21,400 crore in Q3FY19. But revenue surged by 19.11% as against Rs 18,083 crore in Q4FY18. 

On constant-currency basis, the FY19 revenue grew by 7.9% to e $11,799 million. For Q4FY19, revenue were  $3,060 million, recording growth of 9.1% YoY and 2.4% QoQ. 

Salil Parekh, CEO and MD said, "We have completed the first year of our transformation journey with strong results on multiple dimensions including revenue growth, performance of our digital portfolio, large deal wins, and client metrics. This is a reflection of our increased client relevance stemming from our focus on digital, positioning, and longstanding client relationships."

Even though Infosys did manage to record some growth in its earnings, analysts are not upbeat on the company. Many have downgraded their rating. 

Talking about the result, Kawaljeet Saluja and Sathishkumar S analysts at Kotak Institutional Equities said, "Infosys reported a weak quarter with single-vertical led revenue growth and sharp margin contraction. Underlying growth metrics remained healthy, lending comfort to the growth outlook. FY2020 revenue growth guidance was a touch lighter than our estimate though it has sufficient cushion and can deliver at the top end of the range. Margin recovery will likely be sharp post 1QFY20, led by a tightening of operations and closer scrutiny of costs. Net result is a 3-5% EPS cut for FY2020-21E. We cut our fair value to Rs750 from Rs760."

Infosys has set FY120 revenue guidance in the range of 7.5%-9.5% in constant currency. Meanwhile, FY20 Operating margin guidance stands in the range of 21%-23%.

Rahul Jain and Devanshu Bansal analysts at Emkay highlighted that, Infosys’ 2.1% qoq CC growth for Q4FY19 was in line with our expectations of 2.0%. EBIT margins of 21.4% was down ~110bps qoq. For the full-year FY19, Infosys posted 9.0% CC growth vs. guidance of 8.5-9.0%, while EBIT margins declined 150bps yoy to 22.8%. Infosys provided modest CC growth guidance of 7.5-9.5% and lowered its margin guidance band by 100bps to 21-23% for FY20E. Ex-contribution from its Stater/other acquisitions, the implied organic growth guidance would stand at 6.5-8.5%.

The duo at Emkay added, "Modest growth guidance and unexciting exit to FY19 in terms of EBIT margins (with impending wage hikes in H1FY20) should come as a disappointment to the Street. We believe this should lead to at least 6-7% cut in the Street’s earnings estimates for FY20/21. Although the ongoing buyback can support the share price (~USD1bn buyback still remaining), the stock may underperform until it shows profitable growth."

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Hence, Emkay analysts reteriated that, "Infosys’ underperformance continues; it should see flat CC earnings over FY18-20E vs. TCS, whose earnings is expected to grow ~13% in CC terms over FY18-20E. The modest financial performance and unexciting outlook mean a valuation discount over TCS and it should further widen to 25% from the current levels of ~10%. We maintain our Sell rating on the stock with a target price of Rs630 (based on 16x FY21E EPS). Note: Worsening in the macro-situation in US and further impact on currency from Brexit remain key risk to our estimate and view."

Meanwhile, Vibhor Singhal and Shyamal Dhruve analysts at Phillip Capital said, "While the growth parameters ticked all the boxes (digital business growing by 38% yoy, strong dealflow of $1.6bn growing by 73% yoy) – all this growth appears to be coming at the cost of profitability. The lowering of margin guidance for FY20 (from 22-24% for FY19 to 21-23% in FY20) points to continued pressure that Infosys faces, in matching TCS, in growth. At the same time, the persistent headache of high attrition shows no signs of going away, anytime soon."

Phillip's analysts hence said, "Overall, Infosys is sacrificing its margins significantly, and is still not able to match TCS on growth – which the latter appears to be doing it easily, without compromising profitability, on almost twice the base. We believe the growth (relative) and margin concerns will continue to haunt Infosys in near to medium term – leaving little room for upside. We downgrade to NEUTRAL."