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Infosys drops 5% on lower than expected earnings

Infosys gave a guidance that its fiscal year 2022 revenue is set to grow between 12-14% in constant currency terms, while operating margins were guided to be in the range of 22-24%, lower than the 24.5% upper end of FY2021. (MINT_PRINT)Premium
Infosys gave a guidance that its fiscal year 2022 revenue is set to grow between 12-14% in constant currency terms, while operating margins were guided to be in the range of 22-24%, lower than the 24.5% upper end of FY2021. (MINT_PRINT)

  • Infosys was trading at 1,351 on the BSE at 9.35 am, down 3.4% from its previous close
  • Infosys reported 1.5% rise in its revenue to 26,311 crore while its revenue in terms of US dollar gained 2.8%

MUMBAI: Shares of Infosys Ltd fell as much as 5.5% on Thursday as many analysts cut the stock's target price after the company reported lower than expected earnings.

At 9.35 am, Infosys was trading at 1,351 on the BSE, down 3.4% from its previous close. In intraday, it touched a low of 1,320.35 and declined as much as 5.5%.

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Brokerage firm Credit Suisse has maintained its outperform rating but cut its price target to 1,725 from 1,810 a share, Jefferies India has maintained buy rating and cut its price target to 1,600 from 1,620 a share, Antique Stock Broking has maintained buy rating and cut-price target to 2,000 from 2,020 apiece.

The company reported 1.5% rise in its revenue to 26,311 crore while its revenue in terms of US dollar gained 2.8%. Net profit and EBIT dropped more than 2% each sequentially, while margins contracted 90 basis points to 24.5%.

EBIT stands for earnings before interest and taxes.

Voluntary attrition spiked to 15.2% compared with 10.0% in Q3, which, analysts expect, could be an area of concern for the company. In the fourth quarter, Infosys has secured 23 large deals with a total contract value (TCV) of $2.1 billion of which 52% is net new TCV.

The company has also announced another round of wage hikes in July 2021 after a first round at the start of the year. This, along with the return of travel costs, is likely to keep margins under pressure from second half of FY23. According to Edelweiss Securities, cost optimization measures are likely to aid margins.

"With Infosys Q4 earnings being below expectations and the lack of positive surprise to earnings by large players like TCS and Infosys, we believe the earnings cycle has peaked for now (we see cuts likely to consensus earnings), which could prompt a negative reaction." said brokerage firm UBS in a note to its investors.

The company gave a guidance that its fiscal year 2022 revenue is set to grow between 12-14% in constant currency terms, while operating margins were guided to be in the range of 22-24%, lower than the 24.5% upper end of FY2021.

Brokerage firm Elara Capital says that although, FY22E revenue and EBITM (earnings before interest taxes and management) guidance was in-line with expectations, Consensus was aggressive and may have to trim. Both TCS and Infosys’s Q4 suggests they are weighed down by expectations, which, in-turn, caps FY22 earning upgrades in the near term.

"We remain constructive on Infosys in the medium to long term with its ability to engage with large clients for their large transformation programs; we expect Infosys' medium to long term growth to be similar to TCS' and expect pay-out ratio to improve gradually, reaching similar pay-out ratio of TCS in 3-5 years", said Antique Stock Broking in a note to its investors.

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