Infosys hit by slew of downgrades post Q4 results; should you buy, sell or hold?

Morgan Stanley, CLSA, and Credit Suisse downgraded the stock and slashed its 12-month target price to Rs 650 which roughly translates into a downside of about 13 percent from Friday’s closing price of Rs 743.

Infosys, which reported a 10.51 percent year-on-year (YoY) rise in consolidated profit at Rs 4,078 crore for March quarter beating analyst expectations, was hit by a slew of downgrades post-March quarter results.

The Bengaluru-based technology major reported 2.4 percent QoQ growth in revenue but margin at 21.4 percent was below expectations of 22.2 percent.

Also, the IT major lowered its revenue guidance to 7.5-9.5 percent in constant currency terms. The company had set the revenue guidance at 8.5-9 percent in FY19 as opposed to 6-8 percent in FY18.

Reacting to the results, Morgan Stanley, CLSA and Credit Suisse downgraded the stock and slashed its 12-month target price to Rs 650 which roughly translates into a downside of about 13 percent from Friday’s closing price of Rs 743.

Here’s what global brokerage firms recommended for Infosys post Q4 results:

Morgan Stanley: Equal-Weight| Target cut to Rs 700 from Rs 775

Morgan Stanley downgraded Infosys to Equal-Weight from Overweight earlier post March quarter results and also slashed its 12-month target price to Rs 700 from Rs 775 earlier.

Infosys reported a soft Q4 relative to our expectations. The P/E discount to TCS has narrowed but could reverse now, said the note. It also slashed EPS estimates by 2.5/3.9 percent for FY20/21.

EBIT margin of 21.4 percent in Q4 led to a downward revision in margin guidance. Morgan Stanley is of the view that weak margin in Q4 was largely due to low utilisation rates.

Credit Suisse: Underperform| Target cut to Rs 650 from Rs 770 earlier

Credit Suisse downgraded Infosys to Underperform from Neutral earlier post March quarter results and slashed its 12-month target price to Rs 650 from Rs 770 earlier.

It slashed valuation multiple from 18x to 16x on margin disappointment. Growth is picking up for Infosys, but likely to fall short of heightened expectations, said the note.

Another leg down on margin, and there is no comfort on what the floor could be. Arbitrage trade vs TCS could reverse. Credit Suisse slashed FY20/FY21 estimates by 5/6 percent.

Nomura: Reduce; Target: Rs 680

Nomura downgraded Infosys to Reduce post March quarter results with a target price of Rs 680. The downgrade was on the back of weaker growth outlook and likely slower EPS CAGR underpin cautious stance.

The global investment bank slashed FY20-21 EBIT margin by 30-90 bps, leading to 1-4 percent lower EPS estimates. The pending open-market buyback could provide some support.

Disclaimer:-The views and investment tips expressed by investment experts are their own. Ripples Advisory advises users to check with certified experts before taking any investment decisions.

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