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Will Infosys investors be 3rd time unlucky?

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Will Infosys investors be 3rd time unlucky?

Dreamliners at Boeing's production line in Washington.


New Delhi: 

Highlights

  1. The president of the Confederation of Indian Industry on Wednesday said that that the Indian economy quickly needs a revival package.

Shares in India's number two IT outsourcer Infosys have seen a sharp drop on the day the company has announced its earnings. Infosys shares plunged 12.6 per cent on April 13 this year, when the company announced its March quarter earnings. Similarly, shares in the IT bellwether had tanked 8.4 per cent on January 12 this year, after the company announced its December quarter earnings.

Will this quarter be any different? (Read: What to expect when Infosys reports earnings today)

Hitesh Shah, analyst at IDFC Securities told NDTV Profit that most of the negatives have been factored in the stock price. The company is widely expected to lower its full year dollar revenue guidance. Accordingly share prices have fallen more than 12 per cent over the last quarter as compared to 2 per cent gains on the BSE Sensex over the same period.

"It's largely built in that Infosys will revise the dollar revenue guidance by about 1 per cent and the rupee guidance will be revised up by 6 per cent. They would bring the high end of earnings per share guidance to Rs 170. If they do that, I think that is largely priced in and the stock might just be a market performer," Shah said.

The company in April had forecast 8-10 per cent growth for the fiscal year ending March 2013, and may lower it to 6-8 per cent for the full fiscal. Infosys is currently trading at cheap valuations, which means that even if there is a disappointment, the stock is unlikely to fall much.


Here are some of the scenarios that might play out today.
Revenue growth: The Company needs to increase sales in dollar terms and not merely through rupee depreciation for significant appreciation in stock prices. This is unlikely to happen.

Guidance: Second quarter revenue forecast in US dollar terms will be key. Anything higher than 3.5 per cent for Q2 would be a positive. If the ask rate for third and fourth quarter is too high, markets might believe that Infosys will not even meet the revised dollar revenue guidance for the full year. The stock will react negatively.

Macro-environment: A positive management commentary on could lead to the re-rating in the stock, but that is unlikely.

Deal flow: Infosys reported five large deals in the March quarter despite a fall in revenue. Big wins help the company over a long period of time and will be closely watched. The management has done a lot of changes since August last year in their sales strategy and that should reflect now.

Special dividend: It will be a minor positive though it is unlikely that Infosys will announce a dividend.

Acquisition or share buyback: It will be a major positive for the stock. That's because Infosys had over $4 billion cash reserves on its balance sheet as of March 31, 2012.

"Returning cash through buyback leads to higher earnings per share growth and is a better use of cash," Shah told NDTV Profit.



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