10,768.05-45.4
Stock Analysis, IPO, Mutual Funds, Bonds & More

Stock movement: Sustaining growth may prove tough for Infosys

Keeping in view its erratic performance in recent quarters, it will be premature to say Infosys has reversed its fortunes, says ETIG.

, ET Bureau|
Last Updated: Jul 13, 2013, 06.36 AM IST
0Comments
On Friday, the stock shot up by over 11% after the company's sequential rupee-denominated revenue growth of 7.8% for the June 2013 quarter.
On Friday, the stock shot up by over 11% after the company's sequential rupee-denominated revenue growth of 7.8% for the June 2013 quarter.
Infosys continued to surprise the stock market on the day its results for the quarter to June were unveiled, but it was positive this time compared with a sharp decline of 21% three months ago in the quarter to March.

On Friday, the stock shot up by over 11% after the company's sequential rupee-denominated revenue growth of 7.8% for the June 2013 quarter beat analysts' average forecast of a 5.5% growth.

The revision in rupee terms of a revenue guidance of 13-17% growth for this fiscal compared with the earlier estimate of 6-10% was another positive.

But, a prognosis of a reversal in the trend for the second largest software services exporter listed on the Indian stock exchanges, which has shown lack of growth momentum over the past few years, will be premature. This is because the company's financial performance has been rather erratic in recent quarters which makes it imperative for the company to report sustained growth.

The current trend of flip-flop growth over the past two years has resulted in abrupt stock movements on its quarterly results day. The stock swung by more than 10% on each of the past three results-day trading sessions.

To its credit, Infosys reported a strong 4.1% sequential volume growth for the June quarter measured in terms of billed working hours. This is its highest since the September 2011 quarter when it had reported a 4.5% jump. But will it be sustainable? A chunk of the latest brisk growth in volumes is thanks to an uptick in the onsite volumes due to increased traction in consulting and ramping up of application development projects. Whether this can sustain cannot be said with certainty considering the delays in ramp-ups during the past few quarters.

Besides, it will be challenging to retain the strong volume growth amid clouded outlook for IT demand. The management has reiterated about slowing offtake in the high-end, high-margin, discretionary projects. The uncertain scenario is reflected in the management's stance to keep dollar-denominated revenue guidance unchanged at 6-10% for the fiscal, which means caution is still the buzzword. Given this, any major increase in the stock valuation from the current levels looks limited. A re-rating of the stock would require the company to show sustained growth in the coming quarters.

Stock movement: Sustaining growth may prove tough for Infosys

(What's moving Sensex and Nifty Track latest market news, stock tips and expert advice on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds.)
Comments
Add Your Comments
Commenting feature is disabled in your country/region.

Other useful Links


Copyright © 2020 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service