Infosys shares tank 12% after Q4 earnings. Here's what brokerages have to say about IT major

Shares of Infosys tanked 12 per cent at the opening tick on Monday after the company reported a poor performance for the period that ended on March 31, 2023. The guidance, attrition rate and management commentary also disappointed the traders at Dalal Street.

American Depository Receipt (ADR) of Infosys had tumbled about 10 per cent on Thursday at the New York Stock Exchange (NYSE), which further dropped another 2 per cent in the next session on Friday. Infosys hit the lower circuit for the first time after the Covid-19 breakout on March 23, 2020.

Infosys reported results on Thursday, missing expectations and analysts' estimates on all fronts. The software blue-chip reported an 8 per cent growth in its net profit at Rs 6,128 crore, while revenue from operations jumped 16 per cent to Rs 37,441 crore.

Operating profit for the quarter stood at Rs 7,877 crore with operating margin contracting 0.5 per cent both yearly and sequentially. Bengaluru-based IT major reported a 3.2 per cent decline in constant currency revenue, which is the worst in at least a decade.  It expects constant currency revenue growth of 4-7 per cent in the financial year 2024.

Shares of Infosys plunged 10 per cent to Rs 1,249.75 on Monday, hitting the first lower circuit for the F&O stocks. The stock dropped further to Rs 1,222, taking the entire fall to 12 per cent. The scrip had settled at Rs 1388.60 on Thursday.

Infosys braced for a steep selloff on Monday as expected by the analysts after the earnings and expectations for the new fiscal year. Experts gave the stock a major thumbs down including some major downgrades and target price cuts. A slew of downgrades on Infosys means sell recommendations on the stock are the highest since September 2017.

Phillip Capital cut its FY24 and FY25 profit estimates by 5-6 per cent on a sharp miss in Q4 earnings. The brokerage firm is forecasting dollar revenue growth of 6 per cent for FY24 and 11 per cent for FY25, with Ebit margin of 21.5 per cent for FY24 and 21.5 per cent for FY25.

"Our bear case analysis implies a PAT estimate cut of 9-10 per cent. We now value Infosys at 22 times FY25 EPS (25 times earlier), 20 per cent discount to our TCS target multiple on lower growth and margins assumptions," it added with a target price of Rs 1,590 which was Rs 1,910 earlier.

Infosys reported a sharp sequential revenue decline of 3.2 per cent due to aggressive cuts to discretionary programs and a general slowdown in tech spending on account of macro pressure and uncertainty and a one-time revenue impact of 1 per cent from project cancellations. Deal wins were muted, said Kotak Institutional Equities.

"The strong deal pipeline, with several megadeals, was a silver lining. We expect muted 1QFY24 with growth recovery in 2HFY24, led by large/mega deal revenue. We cut our revenue growth and margin estimates, leading to a 6-7 per cent cut to FY2024-25E EPS," it said maintaining a buy rating with a fair value of at Rs 1,470 (from Rs 1,700 earlier).

IT Services have started witnessing the impact of worsening global macros in terms of economic slowdown and cut on spending, which we expect to continue in FY24E. Single-digit revenue growth, limited margin improvement and lower earnings growth closer to the pre-Covid era would lead to a valuation multiple contractions to the pre-Covid level, said Reliance Securities.

"We expect the company's Revenue, EBIT and PAT to clock 9 per cent, 13 per cent and 13 per cent CAGR over FY23-FY25E, respectively. Stock is currently trading at a valuation of 21.7 times FY24E and 18.5 times FY25E. We downgrade Infosys to 'sell' with a revised target price of Rs 1,350, valuing the stock at 18 times on FY25E earnings," it added.


(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Business Today)

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