Photo: Bloomberg
Photo: Bloomberg

Infosys shares falls 5% on weak revenue guidance

  • Stock fell as much as 4.56%, the maximum fall since 11 October 2018, to hit a low of 713.70 a share
  • Infosys said revenue will increase 7.5% to 9.5% in constant currency terms in the year ending March 2020

Shares of Infosys Ltd on Monday fell as much as 4.6%, their steepest fall in six months, after many brokerages downgraded the stock on a disappointing revenue forecast.

The stock fell as much as 4.56%, the most since 11 October 2018, to hit a low of 713.70 a share. At 9.36 am, the scrip was trading at 713.70 on the BSE, down 2.8% from its previous close. India's benchmark Sensex rose 0.14% to 38822.04 points.

The company said revenue will increase 7.5% to 9.5% in constant currency terms in the year ending March 2020. It forecast an operating margin 21% to 23% for fiscal year 2020 estimates, from an earlier guidance of 22-24% for fiscal year 2019.

The negative surprise on margin guidance is due to continued investments for future growth, including enhancing digital competencies, large deal capabilities and localisation. However, the management stated that the aggressive investments on sales revitalization are completed and the pace of investments will be less intense in fiscal year 2020 estimates.

"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%," said Emkay Research in a 2 April note. The brokerage has maintained its sell rating with a target price of 630 a share.

For the financial year 2019, Infosys board recommended a final dividend of 10.50 per share

Also read: Infosys Q4 net profit rises 10% but FY20 guidance disappoints: 10 key takeaways

Brokerage firm Philip Capital has downgraded the stock to neutral and reduced its target price to 720 a share from 800 earlier. Nomura Research downgraded the stock to “reduce" from “neutral" and set the price target at 680 a share. Credit Suisse has cut to “underperform" from “neutral" and lowered its target to 650 a share from 770.

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BoB Capital has downgraded the stock to “add" from “buy" and cut its target price to 820 a share from 830 a share.

HDFC Securities in a 13 April note said that Infosys’ softening FY19 margin trajectory (-150bps vs.+80bps for TCS despite INR tailwinds), is expected to continue over FY20 (-160bps erosion).

"Current valuations amply reflect our estimates USD rev/EPS CAGR of 10/7% over FY19-21E. The ongoing buyback ( 82.60bn started March-end) may restrict near-term downside. Risks to our thesis include slowdown in US/Europe macro and INR appreciation," the HDFC Securities report added.

Of the analysts covering the stock, 34 have a “buy" rating, ten have a “hold" rating, while six have a “sell" rating, shows Bloomberg data.

Meanwhile, shares of Tata Consultancy Services Ltd rose 3% after the company posted an 18% rise in quarterly profit that beat estimates, boosted by deals for services encompassing cloud computing and artificial intelligence.

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