Infosys shares fall 6% on lower operating margin outlook

Mumbai: Shares of Infosys Ltd on Monday fell as much as 6% as investors were disappointed after the company lowered its operating margin outlook and its plan to sell Panaya and Skava.

Infosys shares fell 5.98% in intraday trade to Rs1,099 a share. At 9.45am, the stock was trading at Rs1,125 on BSE, down 4% from its previous close. India’s benchmark Sensex fell 0.22% to 34,115.88 points.

The company lowered its profitability outlook to 22-24% for 2018-19, as against 24-26% two years back and suggested that India’s second largest software services exporter continued to struggle to get more yield from its traditional outsourcing business, where profitability is dwindling.

“A cut in margin guidance was the key disappointment in Infosys’ 4Q results even as 4Q performance and FY19E revenue growth guidance of 6-8% were in line with expectations,” said Jefferies India in a note to its investors.

Brokerage firm Elara Capital has reiterate reduced rating on the stock and urged its investors to switch to Tata Consultancy Services Ltd and HCL Technologies Ltd. The brokerage firm has also cut its target price by 4% to Rs1,120 a share.

Elara says that the lower guidance confirms its fears that the company is running out of margin levers after exhausting utilization and G&A control.

In the January-March period, Infosys reported a 1.8% sequential rise in dollar revenue to $2.8 billion, allowing it to end fiscal year 2017-18 with $10.94 billion in revenue, a 7.2% year-on-year growth, and 24.3% operating margin. In constant currency terms, Infosys managed a 5.8% growth, which was lower than industry body Nasscom’s estimate of 7.8% growth last year.

Brokerage firm Emkay Global has maintained its ‘reduce’ rating on the stock and kept its target price to Rs970 a share.

“We believe that frequent leadership changes and conservative investments in future technologies have impacted the business momentum. The new strategic roadmap may help it to improve growth but may continue to put pressure on profitability (due to sales, onsite spends) in the absence of margins levers,” Emkay report added.

Investors were also disappointed after the company decided to sell Skava and Panaya. These acquisitions were done under the leadership of Vishal Sikka who quit the organization in August.

Of the 53 brokers tracking the Infosys stock on Bloomberg, as many as 40 recommended a ‘buy’ rating, 6 asked its investors to ‘sell’ the stock and 7 have a ‘hold’ rating.livemint

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