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Infosys jumps 4% as firm raises FY19 revenue guidance

SI Reporter/Mumbai 14 Jan 19 | 10:50 AM

Shares of Infosys were up 4 per cent at Rs 709 apiece on BSE in the morning trade in an otherwise weak market after the software services firm increased FY19 constant currency (CC) revenue growth guidance to 8.5-9 per cent from 6-8 per cent earlier. The company has maintained its EBIT (earnings before interest and tax) margin guidance range at 22-24 per cent.

India's second largest IT services firm, on Friday, announced a special dividend of Rs 4 per share. The company announced buyback under the open market route of Rs 8,260 crore at a maximum price of Rs 800 per share.

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However, EBIT margin for the quarter ended December 2018 (Q3FY19) stood at 23 per cent was down 70bps/130bps QoQ/YoY. Margins have been impacted by investment in sales, localization, agile, re-skilling, catch up on compensation and initial impact of acquisitions.

Infosys expects Q4FY19 margins to be impacted by rupee appreciation, targeted compensation corrections, continued investments in business and initial margin impact due to transition and ramp up of some recently won deals, analysts at Antique Stock Broking said in result update.

While margins in the quarter were impacted by multiple headwinds, we believe margins will stabilize FY20 onwards. The company has specifically mentioned about there being no incremental investments in the business in FY20, which gives us the comfort of stable margin trajectory in FY20, it added.

Infosys reported QoQ revenue growth of 2.3 per cent in USD terms (160bp above our expectations) despite no visible help from the USD 700mn Verizon deal signed in Q2FY19. It has raised revenue growth guidance to 8.5-9.0 per cent in CC terms from 6.0-8.0%, according to analysts at Elara Capital.

We had been concerned about the sustainability of margin and lack of investments would put medium-term growth at risk. After the margin hit in Q2FY19, we became confident about improved competitiveness and the current quarter deal wins affirm that belief, it added.

Analysts at Emkay Global Financial Services believe that the alarming levels of attrition at Infosys’ senior executives will hamper its client mining ability (Top 2-25 clients’ growth at just 2.8 per cent YoY on TTM basis) and lead to increased competitive intensity in its renewal deals.

“We maintain our Underweight stance on the name as we believe that Infosys’ priority on revenue traction and need for business investment would mean earnings growth lagging behind revenue growth", the brokerage firm said in result update.

At 10:47 am, Infosys was trading 3 per cent higher at Rs 702 on BSE. In comparison, the S&P BSE Sensex was down 0.55 per cent or 197 points at 35,813. A combined 1.18 million equity shares changed hands on the counter on the BSE and NSE so far.

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