Wednesday, 8 October 2014

NEW DELHI: Infosys Ltd plunged as much as 4.88 per cent in trade on Wednesday, after Citigroup downgraded the stock to "neutral" from "buy." However, they have increased the 12-month target price to Rs 4065 from Rs 3875 earlier.

Infosys has outperformed the market by 10 per cent post the 1Q results and the stock is now trading at 17x 1-year forward earnings. The IT major is scheduled to report its results for the quarter ended September 30 on Friday.

"The company has done well on the cost initiatives and a new management team is in now in place - these positives are adequately discounted in the multiple and consistent pick-up may not be easy - post the rerating, we downgrade to Neutral," said the global investment bank.

At 12:03 p.m, Infosys was trading 3.9 per cent lower at Rs 3681. It hit a low of Rs 3667.10 and a high of Rs 3800 in trade today.

Citigroup expects Infosys to deliver 3.2 per cent QoQ revenue growth, decent in the context of the volatility the company has faced in the past many quarters. The upper end of the FY guidance may be revised lower given the cross-currency movements.

"We expect margins to improve 80 bps due to INR depreciation and lower visa costs qoq. Comments on any strategic changes by the new CEO would be a key investor focus," said the report.

The global investment bank has revised estimates marginally by 5%, incorporating revised currency forecasts (Rs61/$ now vs Rs59.5/$ earlier) and some changes to our revenue/margin assumptions.