Revision in constant currency guidance

The company revised its guidance in constant currency terms to 8-9 per cent. The company had already lowered its revenue guidance to 10.5 percent-12 percent in constant currency from 11.5-13.5 percent in the last quarter.

The revision clearly signifies that there are client spending pressures and TCS had rather clearly indicated that, when the company declared its results on Thursday evening.

This is the second straight quarter that Infosys has cut guidance and this was the biggest factor for the stock crash today.

Not exactly an optimistic picture

CEO Vishal Sikka had this to say after the quarterly numbers. "While we continue to navigate an uncertain external environment, we remain focused on executing our strategy and increasing momentum of our software plus services model. Considering our performance in the first half of the year and the near-term uncertain business outlook, we are revising our revenue guidance." This commentary was not the most encouraging from a very short term perspective.
It is clear that the IT industry and not only Infosys would struggle.

How the stock price reacted?

The shares were trading with gains, after the results were announced. In fact, after the net profits were announced the stock jumped to nearly Rs 1,080.

However, after the guidance was cut to 8-9 per cent, the stock took a turn for the worse and fell to a low of as much as Rs 1,008, which was also a new 52-week low for the stock. It was last trading at Rs 1,020, down almost 3 per cent in trade. There was some buying support ahead of the results that were seen on Thursday.

Other indicators?

The company reported a net profit of Rs 3,603 crores for the quarter ending Sept 30, 2016, as against expectations of around Rs 3,500 crores. The consolidated EBIT margin was placed at 24.9 per cent. Dollar revenues was at 2587 million for the quarter ending June 30, 2016. Dollar revenue was up 3.4 per cent, while the volume growth was at 4%. All of these point to a stable quarter, except the guidance, which fuelled suspicion in the mind of investors.

What the management had to say?

"We focused on strong execution in Q2 with our core IT services business showing good progress on the strength of our innovation and operational initiatives.

While we continue to navigate an uncertain external environment, we remain focused on executing our strategy and increasing momentum of our software plus services model.

Considering our performance in the first half of the year and the near-term uncertain business outlook, we are revising our revenue guidance," said Dr. Vishal Sikka, CEO. "

"Longer-term, I believe it's increasingly clear that our industry's future lies in evolving from a cost-based, people -only model, to one in which people are amplified by software and AI," he noted.

Should you buy the stock?

The company reported an EPS for the quarter ending June 30, 2016, of Rs 15.77. It is highly possible that it can report an EPS of close to Rs 62 for the full year 2016-17. This makes the stock not very expensive at under 17 times, one year forward earnings. However, if the stock falls some more it could be an interesting bet. Check Infosys stock quote here