Infosys Technologies: From darling to a laggard

Business

oi-Sunil

By Sunil Fernandes

Updated: Thursday, July 12, 2012, 10:35 [IST]

Analysts tracking the performance of Infosys Technologies have never been so disappointed. The company's 1st Quarter 2012-2013 results declared today have disappointed on every front including profit after tax (PAT), margins and revenue guidance.

The company's ability to beat its own revenue and profitability guidance has over the years turned Infosys Technologies into a darling of equity investors. The last two quarters have seen that uncanny ability to beat street expectations disappoint by quite a distance.

This is the second successive quarter when Infosys Technologies has reported woeful results. The company reported a PAT of just Rs 2289 crores against market expectations of around Rs 2450 crores. In fact, this is 1% below the Q4 2011-2012 figures.

In fact, the company has provided a growth in revenue of just 5% for 2012-2013, cutting the estimates from earlier figure of 8-10%. Interestingly, NASSCOM expects the industry to grow at 12%, which means Infosys will grow even below industry estimates.

This leave analysts wondering whether the company deserves a price to earnings multiple of around 14 times considering a muted growth of around 5%.

The company is expected to report a rupee EPS of around Rs 166, which at the current market price of Rs 2222 makes for a price to earnings multiple of around 14 times. Is a re-rating in the stock likely? It looks certain the way the company's shares have dropped by almost 9%.

In fact, analysts might now looking at churning their portfolio within the IT pack by selling Infosys Technologies and moving into stocks that offer better growth opportunities like TCS and HCL Technologies.

Marketmen are not buying the idea that discretionary spends from clients are affecting the company. They question as to why these reduced client spendings are not affecting the likes of TCS and HCL Technologies.

In fact, analysts believe that the performance of Wipro too would be like Infosys where growth is likely to be muted. A portfolio churn within the IT sector is a possibility.

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