Infosys makes investors rich! Shares gain by 4%; buy now, will peg over 18% return ahead - Check what analysts say
In its December 2018 (Q3FY19) quarter, Infosys posted a disappointing result with consolidated net profit declining by a massive 29.61% to Rs 3,610 crore compared to Rs 5,129 crore witnessed a year ago in the same period.
Even though benchmark indices Sensex and Nifty were on a hotbed in today's trading session in Dalal Street, yet it was quite a treat to watch the performance of IT giant Infosys' share price. Infosys has made many investors rich today, by soaring nearly 4% in a few hours of Monday's session. This was despite the company posting the negative result in terms of Indian rupee during December 2018 quarter. Guess what! Stay invested in Infosys, as the company is now seen to give massive gains to its investors ahead.
At around 1217 hours, the Infosys was trading at Rs 697.95 per piece higher by Rs 14.25 or 2.08% on BSE. However, the company has touched an intraday high of Rs 709 per piece resulting in overall gains of over 3.70% on the index.
In its December 2018 (Q3FY19) quarter, Infosys posted a disappointing result with consolidated net profit declining by a massive 29.61% to Rs 3,610 crore compared to Rs 5,129 crore witnessed a year ago in the same period. Q3FY19 PAT was also down by 12.16% from Rs 4,110 crore registered in Q2FY19. On the other hand, Infosys revenue came in at Rs 21,400 crore in Q3FY19 which was higher by 20.26% as against Rs 17,794 crore in Q3FY18 and was sequentially up by 3.83% versus Rs 20,609 crore in Q2FY19.
Interestingly, in dollar terms, the revenue was at $2,987 million, the growth of 8.4% YoY and 2.2% QoQ. Operating profit was at $675 million - the growth of 0.9% YoY and decline of 2.6% QoQ. Digital revenues stood at $942 million (31.5% of total revenues) in Q3FY19, which saw year-on-year growth of 33.1% and sequential growth of 5.0% in constant currency terms.
Going forward, FY 19 revenue guidance in constant currency revised upward to 8.5%-9.0%; Operating margin guidance retained at 22%-24%.
Thereby, this calls for the real question whether you should buy Infosys stock price. Let's find out what analysts believe!
Govind Agarwal and Heli Modi analysts at Antique Stock Broking said, "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. Further, we believe the investments made by the company to be more relevant in the market place, will start yielding results and lead to an accelerated growth rate for FY20. Company's YoY CC rate is now at double-digit (10.1% for Q3FY19) after nine quarters and we expect this trend to continue going forward."
The duo added, " Led by strong revenue beat in Q3 and revenue guidance revision we upgrade our FY19/FY20/FY21 USD revenues by 0.6/ 1.4/2.3% respectively. We cut our EBIT margin estimates slightly, net-net our EPS numbers are unchanged. We maintain BUY with a target price of INR810 (based on 18x FY21E EPS). The stock is trading at 16.8/15.3X FY20/FY21E EPS which we believe is attractive given the improving business outlook evidenced by revenue growth acceleration."
Analysts at Motilal Oswal said, "Driven by INFO’s robust show on revenue growth, deal wins and upgraded guidance, we increase our FY19/20/21 revenue estimate by 0.6/1.1/2.0%. However, given the cost challenges, we trim our FY19/20/21 EBIT margin estimate by 42/62/44bp to 23.3/22.8/23%. Our earnings estimates are down by 0.3-1.6% as a consequence. INFO’s impressive catch up on revenue growth with industry leaders is encouraging, while challenges on the margins are secular."
Motilal further added, " 3QFY19 performance will make a case for the narrowing of the valuation gap with leading peers such as TCS, in line with our thesis. Our price target of INR800 discounts forward earnings by 18x, implying a 17% upside. Maintain Buy."
On the other hand, Ravi Menon and Ashish Agrawal analysts at Elara Capital said, "We change USD-INR assumptions to 70.1, 71.9 and 73.8 for FY19E, FY20E and FY21E, respectively (from 71.0, 74.3 and 75.5). We maintain our revenue estimates for FY19 and FY20, but reduce them by 0.8% for FY21E and lower EBITDA margin estimate by 94bp, 138bp and 63bp for FY19, FY20 and FY2 respectively."
The duo at Elara added, "We arrive at a new TP of INR 790 from INR 850 based on 20x (unchanged) March 2020E P/E. We revise to Accumulate from Buy, due to lower EPS estimates with our revised USD-INR assumptions. "
Interestingly, analysts at Sharekhan believe that Infosys potential to rise further is much more than what above-mentioned analysts have predicted.
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In Sharekhan's view, "We have tweaked our earnings estimates for FY2019E/FY2020E/FY2021E, factoring in the lower than the expected margin that is being largely offset with increased revenue guidance in FY2019E and improving business visibility. At the CMP, the stock is trading at 16.4x/15.1x its FY2020/FY2021E earnings estimates."
" With robust TCV signings and improving business visibility, we believe Infosys is gradually catching up in revenue growth with TCS," adds Sharekhan.
Hence, Sharekhan says, "we believe the discount with TCS will gradually reduce going forward. Thus, we maintain our Buy rating on the stock with an unchanged price target (PT) of Rs. 840."
Thereby, if we take into consideration the Infosys intraday high of today and Sharekhan's target price, then the company sees to peg over 18% return for its investors. Hence, It is a buying time in Infosys!
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