The IT major reported a net profit of Rs 2,886 crore for the quarter ended June 2014, down 3.5 per cent, compared to a Rs 2,992-crore profit reported in the previous quarter. While on year-on-year basis profits rose 21.6 per cent.
Commenting on the results and the future of the company, S. D. Shibulal, CEO and Managing Director, said, "As I transition the CEO mantle to Vishal, I am confident that he will leverage this strong foundation to take Infosys to greater heights. I wish him the very best."
The stock has plunged over 5 per cent so far in the year 2014, but analysts are confident that with the appointment of first non-founder chief executive, Vishal Sikka, who takes charge from the incumbent SD Shibulal from August 1, should be able to boost the stocks.
"The stock has been underperforming the peers owing to past KMP exits/ earning warning in last quarter. However, we believe that the stock should do better than the earnings growth due to likely improved sentiment and confidence restoration post joining of an external CEO - Vishal Sikka," said Rahul Jain, Senior Analyst at Dolat Capital Market Pvt. Ltd.
"We maintain our market-performer stance on the stock with a target price of Rs 3865 valued at 18.5x/16x on FY15/16E earnings," he added.
Infosys' EBIT margin declined by just 35 bps q-o-q to 25.1 per cent compared to Street expectation of a 210bps sequential decline. This is commendable given the fact that company was facing margin headwinds of wage hike, visa costs increase and rupee appreciation.
"The margin story is more interesting to watch. Remember last year, they talked about how they moved from Q1 to Q4 in the range of 23% to 25%. Now I had not anticipated that they will begin FY15 at 22%," said Ankit Pandey, IT Analyst, Quant Broking.
"At the same time, do not forget that this is sort of a transitional year. There will be plans laid out and Mr. Sikka will have different view of things. He may want to disregard some areas and he may want to focus more on certain things," he added.
The company maintained its FY15 USD revenue growth guidance unchanged at 7-9 per cent, implying CQGR of 2.3-3.5 per cent for the next three quarters.
"We expect that the company will be easily able to clock in 8.5% USD revenue growth in FY15. The management opined that the global economic environment has improved and looks exciting for the IT services industry," said Ankita Somani, Research Analyst at MSFL Research.
The company has still got headroom to increase its utilization level by 200bp to be comparable with peers and this, in turn, will assist in increasing operating margins further.
"We believe that the impact of current high level exits could be felt in the near term, but with a new CEO in place and the company being system driven with a decent management bandwidth, the impact will not be long lasting," she added.
Somani maintains an 'Accumulate' rating on the stock. The target price is under review.
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