The Infosys stock felt the heat of a lower margin guidance for FY19, and plan to sell Panaya and Skava in trade today, post its Q4 earnings announcement on Friday. Market capitalisation of the stock fell nearly Rs 15,000 crore within minutes of the opening trade. The stock fell up to 6% in morning trade. At 2:55 pm, the stock was trading 3.39% lower at 1129 level on BSE. On NSE, the stock was down 3.60% to 1,129 level. Investors lost Rs 7,864 crore in market capitalisation on BSE.
Infosys announced a conservative EBITA margin guidance of 22-24 percent for FY 19 (versus 24.3 percent in FY18), which analysts said spooked the market.
The stock fell despite the expectations of lower guidance under the leadership of Salil Parekh who took over as the CEO of the $10 billion company on January 2 this year. The market seems to have ignored Parekh's reputation of lowering expectations but delivering higher results.
The second reason seen for the fall in stock was Infosys' plan to sell Panaya and Skava, firms that were acquired under former CEO Vishal Sikka's tenure to enhance the company's digital capabilities.
The stock became the top loser on the Sensex and Nifty after it cut its FY19 earnings before interest and tax margin guidance to 22-24% compared with the FY18 band of 23-25%.
"This will largely factor in investments in localized talent, revitalizing sales, Digital capabilities and delivery staff. The 1% revision amounts to $120m, and considering that these are investments in people, which will only come gradually, we see the lower end of the margin band as conservative, and expect it to be raised during the course of the year," Motilal Oswal said in a report. Motilal Oswal has a buy rating on the stock.
Credit Suisse said EBITA margin guidance of 22-24 percent (versus 24.3 percent in FY18) was 100 bps below expectations and is disappointing given that the currency is slightly supportive for now.
"A cut in margin guidance was the key disappointment in Infosys' 4Q results even as 4Q performance and FY19E revenue growth guidance of 6-8% were in line with expectations," said Jefferies India in a note to its investors.
Commenting on the earnings, Nomura said growth in developed markets was weak and among key verticals (Banking, Financial services and Insurance/Retail) growth was flat to negative. The firm maintained 'reduce' rating on stock with a target price of Rs 990.
Bengaluru-based IT firm reported a 2.4 per cent rise in its fourth-quarter net profit to Rs 3,960 crore. However, the company's net profit on a quarterly basis fell 28.1 per cent. The IT services behemoth had reported a net profit of Rs 5,129 crore in the December quarter and Rs 3,603 crore in the corresponding quarter last year.
The revenue of India's second-largest software services firm increased 5.6 per cent to Rs 18,083 crore. The company said its revenues from digital offerings stood at $2.79 billion (25.5 per cent of total revenues) for FY18. The IT services firm has guided for 6-8 per cent constant currency revenue growth for FY19.