Infosys Advances on Second-Quarter Earnings Beat

(Bloomberg) -- Infosys Ltd., Asia’s second-largest exporter of software services, posted a higher-than-estimated increase in net income as investments in its high-margin digital services and automation paid off. The stock climbed as much as 3.8 percent.

Analysts, however, remained concerned about the company’s margins, which were narrower than expected even with the benefit of a weaker rupee. “Margin disappointment can hold back any re-rating,” Credit Suisse said in a note.

Here’s what analysts had to say about the results:

CITIGROUP (Surendra Goyal)

Ebit growth of 5% y/y in USD terms (3% below est.) despite ~10% rupee depreciation is something to keep in mind for long-term investorsInfosys’ discount to Tata Consultancy Services Ltd. could narrow further with growth acceleration; prefers Infosys to TCSSurprised by the narrowing in gross margin despite rupee depreciation Maintains neutral with PT760 rupees

EMKAY GLOBAL (Rahul Jain )

Sales outlook for FY20 improved slightly on 2Q growth, better commentary and large dealsWeaker margin estimates could lead to EPS downgradesEbit margins remained flat despite currency tailwinds due to an increase in sub-contractor costs, wage hikes and compensation increases to curb rising attritionMaintains sell rating with PT580 rupees

CREDIT SUISSE (Anantha Narayan)

Flat Ebit margins were well-short of expectations; attrition remained high at 21%Weaker-than-expected margins takes sheen away from strong growthRevenue was encouraging across many segments2Q numbers addresses the concern of slower growth to some extent

To contact the reporter on this story: Nupur Acharya in Mumbai at nacharya7@bloomberg.net

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Margo Towie, Naoto Hosoda

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