Infosys September 2017 (Q2FY18) results were a mixed bag. While the numbers met market expectations on the financial performance (revenue, profit after tax, etc) front, a cut in FY18 guidance to 5.5 – 6.5% came in as a surprise. The results were announced post market hours on Tuesday.
Contrary to expectation, Infosys did not name a new chief executive officer (CEO) and gave a clean chit to former CEO, Vishal Sikka on Panaya deal.
Also Read: In a snub to Murthy, Infosys gives Sikka thumbs up; cuts FY18 guidance
The stock opened marginally lower on Wednesday at Rs 921 levels. Here is how leading research houses and brokerages have interpreted the statements:
CREDIT SUISSE
There does not appear to be any material change in the company's direction. Further reviews on issues raised by the founder have not revealed any irregularities. The search for a new CEO continues, and there is no fresh update. We have revised our estimates and target price down slightly (target price to Rs 1,000) to factor in Q2FY18 numbers. The stock has underperformed over the last year, valuations are inexpensive, and there is a buyback around the corner. However, growth is sluggish.
EMKAY GLOBAL
We believe that the traction business momentum in top accounts would remain soft in the absence of a thought leader (CEO). We also see the lowered growth expectation impacting profitability in the absence of any further efficiency levers, weak rupee realisation, increased investment intensity (reskill, onsite hiring) and unfavourable operating leverage. We have cut our estimates for FY19E / 20E by around 2% each and expect Infosys to underperform in the near term despite attractive valuation. We reiterate HOLD with target of Rs 940, valuing it at 13x FY20E earnings (30% discount to TCS valuation, at par on ~2x PEG basis).
Also Read: Full text: Murthy says questions on 'poor governance' remain unanswered
Also Read: Full text: Murthy says questions on 'poor governance' remain unanswered
IDBI CAPITAL
Infosys has cut its FY18 revenue growth guidance to 5.5 - 6.5% from 6.5 - 8.5% in constant currency driven by seasonal weakness in Q3. We believe that the company is being conservative and are confident of it meeting the top-end of the range. We fine-tune our FY18/19 forecast - revenue (US$)/EPS CAGR of 7.8%/6.7%. We maintain ACCUMULATE with new target price of Rs 1,000 (from Rs 988) based on 14x FY19E.
SHAREKHAN
The commentary from Nandan Nilekani has no major departure from Dr. Vishal Sikka’s strategy to accelerate growth though the newer services, which we view as a positive for Infosys. However, execution under the new upcoming CEO will be key for growth revival, given the tough macro environment.
We have broadly maintained our earnings estimates for FY18/19E. At the current levels stock is trading at 13x FY19E estimates, which mostly factoring a weaker earnings trajectory over FY17-
19E. We believe the downside risk is protected to certain extent as Infosys is currently trading at steep discount to TCS, which has similar growth profile and upcoming buyback program (record date on November 1st, 2017) will also protect the downside risk. With the absence of growth triggers and management transition issues, we maintain our HOLD rating on the stock with unchanged price target of Rs 1,000.
Aston Business School, UK
Infosys' decision not to encourage public probes into internal company matters such as Panaya acquisition and senior executive turnover tows the line of a 150 year old time tested rule in company law, Doctrine of Indoor Management. Although related to a different context, the rule allows outsiders to assume that internal policies and processes have been duly and properly followed without allowing the general public continuously probe into matters of company management and administration. The decision plays to this time-tested principle to thwart what could be an unending array of public probes into internal company matters, thus allowing it to pursue greater interests.