Ambuja, Shree Cement, ACC shares fall 1-2% after Nomura downgrade

Cement majors Ambuja Cements, ACC and Shree Cement fell 2 percent, 0.9 percent and 0.87 percent, respectively, intraday on June 13 after Japanese brokerage firm Nomura downgraded them to neutral from buy.

Nomura cut the target price for Ambuja Cements to 240 from Rs 295 as it sees may see the lowest volume/earnings growth among largecap peers.

"Company appears to be least geared for an upcycle. We expect a modest 4.2 percent volume CAGR over the next two years," Nomura said, adding in next two years, the company may see standalone earnings at 12 percent CAGR against 27 percent for its peer ACC.

In case of Shree Cement, the brokerage raised price target to Rs 21,500 from Rs 18,000 earlier as earnings outlook look good though valuations are becoming expensive.

Nomura believes cement is in an upcycle, but upside is limited. We expect two-year EPS CAGR of 40 percent, it said.

The brokerage also raised price target for ACC to Rs 1,750 from Rs 1,700 earlier.

"We see 27 percent earnings CAGR over two years, but may be at risk if price increase is lower. With capacity utilisations at 90 percent, cycle upside benefits seem limited," it said.

At 1018 hours IST, Shree Cements was down 0.40 percent at Rs 20,465, ACC down 0.49 percent at Rs 1,571.60 and Ambuja Cements fell 1.25 percent at Rs 217.95 on the BSE.

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Shree Cements, DCB Bank and Petronet LNG on Sanctum Wealth's shopping list

After a gap-up opening, the market failed to hold on to its gains and sold off in the last hour of trade. Nifty ended the day at 11,498 down 0.87 percent.

The broader market indices such as the BSE Midcap and Smallcap were down 0.98 percent and 0.85 percent, respectively.

For the last five weeks, the index has been trading in a range of 11,550-11,850. It broke this consolidation zone and closed below it with a bearish long body candlestick on the daily chart on May 7. We expect selling pressure to continue initially towards 11,370-11,350 and then 11,200 where next supports are seen.

On the upside, 11,550-11,650 will act as resistance zone for the index. In Nifty weekly options, a significant amount of Call writing was seen in 11,500 to 11,650 strike price, while Put unwinding was seen 11,600.

Thus, in the near-term, Nifty is likely to see an overhead resistance at 11,550-11,650. India VIX closed marginally higher by 0.19 percent for the day at 26.48 which is almost at three years high.

Going forward, we expect VIX to remain at elevated levels as markets head towards election results.

Here are five stocks that could give 10-14 percent return in the next one month:

Shree Cements: Buy| CMP: Rs 19,766| Stop loss: Rs 19,100| Target: Rs 21,750| Upside: 10 percent

The stock hit an all-time high of Rs 20,538 couple of year ago and went into correction mode since then. It touched a low of Rs 13,100 in October last year and then rallied back to current levels.

The price crossed above the falling resistance trend line connecting correction highs of Rs 20,538 and Rs 19,849 thus, indicating the correction is over and the stock has resumed its uptrend.

The stock has been forming higher highs and higher lows on the daily chart. The stock price has been moving along 21-day exponential moving average which has been acting as a support for the stock on dips.

Thus, the stock can be bought at current levels and on dips towards 19,600 with a stop loss below Rs 19,100 and a target of Rs 21,750.

DCB Bank: Buy| CMP: Rs 214| Stop loss: Rs 204| Target: Rs 245| Upside: 14 percent

After hitting a high of Rs 213 in June’17, the stock has entered into a correction phase and touched a low of Rs 140 in October last year.

Since then, the stock has seen a strong rally forming higher tops and higher bottoms on the weekly charts. In early March this year, the stock witnessed a breakout from falling trend line connecting correction highs of Rs 213 and Rs 204.

It went on to hit an all-time high of Rs 220 with strong momentum and high volumes indicating buying participation in the stock.

The stock is now consolidating near its high point in a narrow range and below average volumes for the last few sessions forming bullish pole and flag pattern.

Thus, stock can be bought at current levels and on dips towards Rs 211, and a stop loss below Rs 204 with a target of Rs 245.

Petronet LNG: Buy| LTP: Rs 238| Stop loss: Rs 228| Target: Rs 275| Upside: 15 percent

After touching an all-time high of Rs 275 in November’17, the stock corrected down towards Rs 202 in May’18. It has formed multiple lows around Rs 202 and has seen a rangebound action between Rs 202-232 indicating as a value area for the stock.

Looking at the broader time frame charts, the stock has been consolidating between Rs 202 to Rs 250 for the last one year.

In April, the stock witnessed a breakout to touch a high of Rs 255 and is now seeing a short-term consolidation below the breakout level.

It is seeing some buying around Rs 232 which was the previous consolidation high. The relative strength index and stochastics have given a positive crossover with their respective averages on the daily chart.

Thus, the stock can be bought at current levels and on dips towards Rs 235 with a stop loss below Rs 228 and a target of Rs 275.

Max Financial Services: Sell| CMP: Rs 408| Stop loss: Rs 428| Target: Rs 360| Downside: 11 percent

The stock is in a downtrend forming lower tops and lower bottoms on the weekly chart. In the last few months, the stock has seen a bounceback from lower levels of Rs 350-360 but has failed to cross the Rs 465-450.

The stock has shown a reversal and closed below the previous swing low of Rs 411. The price has again moved below its 200-day moving average.

Also, the price has given a breakout on the downside from the Bollinger Band with the expansion of bands indicating a continuation of the trend in the direction of breakout on the daily chart.

MACD line has given a negative crossover with its average and moved below equilibrium on the daily chart. Thus, stock can be sold at current levels and on the rise to Rs 413 with a stop loss above Rs 428 and a target of Rs 360.

Amara Raja Batteries: Sell| CMP: Rs 643| Stop loss: Rs 665| Target: Rs 580| Downside: 10 percent

The stock has seen a consolidation between Rs 900 and Rs 660 for the last 18 months. It has broken this consolidation range and is now trading below it.

The price has given a breakout on the downside from the Bollinger Band with the expansion of bands indicating a continuation of the trend in the direction of breakout on daily as well as on weekly chart.

MACD line has given a negative crossover with its average below equilibrium on the daily chart. Thus, stock can be sold at current levels and on a rise towards Rs 650 with a stop loss above Rs 665 and a target of Rs 580.

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Ambuja Cements to report Q4 earnings today; here's what brokerages are expecting

Cement major Ambuja Cements is scheduled to report its March quarter earnings on April 30. According to Prabhudas Lilladher, the company is expected to report net profit of Rs 312 crore, up 14.8 percent year-on-year, (up 29.2 percent quarter-on-quarter).

Net Sales is expected to increase 6.9 percent Y-o-Y (up 6.9 percent Q-o-Q) to Rs 2,954.5 crore, while earnings before interest, tax, depreciation and amortisation (EBITDA) is likely to jump 12.1 percent Y-o-Y (up 49.5 percent Q-o-Q) to Rs. 456.7 crore, the report added.

ICICIdirect expects Ambuja Cements to report net profit of Rs 294.8 crore up 8.5 percent year-on-year (down 45.1 percent quarter-on-quarter). Net Sales is expected to increase 4.6 percent Y-o-Y (up 4.6 percent Q-o-Q) to Rs 2,995.2 crore. EBITDA is likely to rise 1.7 percent Y-o-Y (up 27.7 percent Q-o-Q) to Rs 515.8 crore, it said.

The infrastructure and the government’s ‘Housing for All’ initiative led to 9 percent growth in the cement industry in CY18, said Motilal Oswal. However, Ambuja Cements' profitability took a hit due to increased raw material and fuel prices, it said. Cash flow from operations before taxes and working capital changes declined 6 percent to Rs 1,810 crore in CY18. The research firm has maintained a neutral stance on the stock.

Emkay Global Financial Services expects Ambuja Cements to report volume growth of 4 percent YoY. It remains underweight on Ambuja Cements.

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Source: Moneycontrol

Tata Coffee: Volume growth visibility improves in Q4; accumulate on dips

Tata Coffee’s Q4 FY19 sales number underlined better volume growth in the domestic coffee business and an improving margin profile.

Result snapshot

Source: Company

Note: Lower net profit is due to high base of last year where there was a tax reversal of Rs 53 crore on account of reduction in the US Federal Tax rates.

Key positives

Q4 FY19 consolidated sales grew five percent on account of volume growth in the value-added coffee business, partially offset by plantation business. Value-added business (83 percent of sales) was up seven percent in the quarter gone by, aided by domestic instant coffee business sales – 18 percent sales growth year-on-year.

Earnings before interest, tax, depreciation and amortisation (EBITDA) margin gained both annually (518 bps) and sequentially (183 bps QoQ) on account of sharp improvement in operating performance of the plantation business (17 percent of sales). This was partly aided by weak base of last year when the plantation business posted a loss at the operating level due to Kerala floods and lower product realisations.

Key negatives

Competitive pressure remains for the value-added segment. Operating margin in this segment is marginally lower than last year. Key drag in this segment has been Eight O’Clock business (around 60 percent of consolidated revenue), wherein sales are down seven percent. Profitability of this business has been also impacted by restructuring cost of Rs 4.84 crore (versus Rs 10.81 crore last year).

Key observation

Vietnam plant (5,000 tonne capacity) for freeze dried coffee has been commissioned and expected to attain 70 percent utilisation in FY20. The management expects margin from this facility to be higher than the Indian coffee business.

Outlook

The company is gradually treading past some of the domestic challenges. The plantations business is expected to witness 10-15 percent volume growth in FY20. Volume growth would be aided by the quick ramp-up of the Vietnam plant. Pricing growth is expected to be muted. Taking account of a gradual improvement in Eight O’Clock coffee business, we expect a 12 percent sales growth in FY20.

On account of elevated competitive pressure we don’t expect a sharp rebound in operating profit margin. Rather a gradual margin improvement led by an anticipated change in product mix.

As far as the stock is concerned, it has corrected by 33 percent from its 52-week high and currently trades at 22 times FY20 estimated earnings. The counter merits attention as it is witnessing improving volume trend in select segments and is likely to benefit from a favourable product mix. We take note of the management’s mention that asset monetisation of non-core assets would continue. This gives credence to the opinion that restructuring of business is not over.

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Source: Moneycontrol

ACC may post double-digit profit growth in Q1 driving on cement price hike

Cement company ACC is expected to announce a double-digit growth in March quarter profit on April 23, driven by strong operating income and an increase in cement prices.

Brokerages expect Q1 profit growth in the range of 20-44 percent compared to year-ago period. The company follows January-December as its financial year.

ICICI Securities sees 20 percent growth in profitability while Edelweiss and Motilal Oswal expect the growth at 40 percent and 44 percent YoY, respectively.

"Slowing cost inflation and improving realisations would lead to 12.7 percent growth in EBITDA to Rs 673 per tonne. Consequently, PAT would grow 20.6 percent YoY to Rs 302 crore," ICICI Securities said.

Motilal Oswal said EBITDA is estimated at Rs 839 per tonne (+Rs 159 QoQ), led by Rs 129 QoQ increase in blended realisation and Rs 30 QoQ decrease in cost. PAT is likely to increase 44 percent YoY, it added.

The growth in EBITDA is likely to be supported by higher realisations, lower fuel and other costs.

Cement volume of the company is expected to grow in the range of 5-8 percent YoY in Q1 led by strong traction from rural housing schemes and demand from the affordable housing segment.

Kotak said it expects 8 percent YoY growth in volume to 7.7 million tonne, whereas Motilal Oswal expects dispatches to grow 7 percent YoY led by growth in underlying markets.

Cement prices have increased in all regions. In the South, where the company has almost 30 percent of exposure, cement prices have increased around 5 percent. In the East and West regions, where the company has 40 percent exposure, prices have increased 1 percent sequentially.

Considering price hike across regions, brokerages expect realisation to increase 1.5-2 percent QoQ and around 3 percent YoY.

"Aided by higher cement prices and increased contribution of premium products, we expect a 3.7 percent growth in realisations to Rs 5,190 per tonne YoY," ICICI Securities said.

Kotak said, "We estimate realisations to increase 2 percent QoQ (+3 percent YoY) led by 1-5 percent QoQ increase in cement prices in the company's key markets in South, Central and East regions."

For the March quarter, revenues are expected to increase in the range of 7-12 percent YoY. Kotak as well as Motilal Oswal expect topline to grow nearly 12 percent YoY each. Prabhudas Lilladher and Antique see over 7 percent YoY.

"Capacity utilisation of the company is above 85 percent and thus considering the growth in cement demand in upcoming quarters, the company is expanding its capacities," Narnolia said.

ACC is setting up a greenfield unit in Katni (MP), with a clinker capacity of 3MT and a grinding capacity of 1MT and 1.6MT split grinding unit in Tikaria (UP). These new capacities are expected to have 20 percent lower operational cost, the brokerage said.

Key issues to watch out for would be cement pricing sustainability, volume growth and update on capacity expansion plans.

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Source: Moneycontrol

Brokerages mixed on RIL post Q4; should you buy, sell or hold?

Brokerage firms remain mixed on Reliance Industries after March quarter results as CLSA, Nomura maintained their buy rating whereas Kotak Institutional Equities maintained 'sell' while IDBI Capital downgraded the stock to hold.

Investors who are already invested in RIL may remain long on the stock as some brokerage remains confident of a strong rally of over 10 percent in the next 12 months.

CLSA has the most aggressive target price on RIL at Rs 1,665 for next month which translates into an upside of 20 percent from April 18 close.

However, as the view remain mixed, investors should avoid fresh longs, suggest experts.

Reliance Industries, India's largest company by market capitalisation, reported a 9.8 percent YoY growth in fourth quarter consolidated net profit to Rs 10,362 crore. This was driven by a 19.4 percent increase in quarterly revenue to Rs 1.54 lakh crore.

The company attributed the robust revenue performance to strong growth in its retail and digital services businesses that grew 51.6 percent and 61.6 percent, respectively. Higher petrochemical volumes also contributed to growth in revenue, the company said.

The company's board has recommended a dividend of Rs 6.50 per equity share of Rs 10 each for the financial year ended March 31, 2019.

The company's Q4 gross refining margin (GRM) came in at $8.2/bbl against $8.8 a barrel reported in the December quarter of FY19 and $11/bbl in Q4FY18.

Here’s what other brokerage firms recommend on RIL after its Q4 results:

CLSA: Buy| Target raised to Rs 1,665 from Rs 1,500

CLSA marinated a buy rating on RIL after March quarter results and raised its target price to Rs 1,665 from Rs 1500 earlier.

$15 billion cuts in liabilities and capex intensity may have peaked, said the CLSA note. Lease payments for demerged assets drive a 3-8 percent cut in EPS estimates.

Nomura: Buy| Target: Rs 1,400

Nomura maintained a buy call on RIL with a target price of Rs 1,400. Refining margins recovered from the low levels, and the ramp-up of petcoke gasification over the next few months is also positive for refining margins.

Nomura is of the view that IMO regulation changes are positive for refining margin. Petchem continues to do well, while the polyester chain margin has remained strong.

The pace of growth in both retail & Jio remains quite strong, and with the transfer of fibre/Jio to InvIT, Jio has become asset-light, said the report. Nomura further added that Jio capex should decline now.

Kotak Institutional Equities: Sell| Target: Rs 1,100

Kotak Institutional Equities maintained its sell rating on Reliance Industries. The brokerage also maintained its target of Rs 1,100.

The domestic brokerage firm revised FY20-21 consolidated EPS estimates to Rs 75 (-2 percent) and Rs 87 (+1 percent).

The brokerage firm is factoring in lower subscribers/ARPU for Jio. RIL has not incorporated fiber/tower demerger in the P&L yet. Kotak remains concerned about persisting high capex and rising leverage.

IDBI Capital: Downgrades to hold| Raises target to Rs 1,400 from Rs 1,326

IDBI Capital downgraded RIL to hold from a buy earlier but hiked the target price to Rs 1,400 from Rs 1,326.

The downgrade is largely on account to price appreciation and limited upside. The brokerage firm hiked target to reflect FY21 estimates.

IDBI Capital expects higher opex due to demerger that will be offset by lower depreciation and interest.

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Source: Moneycontrol

FII pulse: Investors raise stake in 187 companies in Q4, book profits in over 200

Foreign institutional investors, who poured in more than Rs 40,000 crore in Indian markets in the March quarter, raised stake in 187 companies on a sequential basis.

On the other hand, they booked profits or reduced stake in over 200 companies, data from AceEquity showed.

According to shareholding data declared by companies as of April 12, the stocks where foreign investors (FIIs) raised stake in the fourth quarter include Axis Bank, UPL, PNB, Bajaj FinServ, Wipro, Bajaj Finance, ACC, Bharti Airtel, SBI, Aurobindo Pharma, HDFC and DLF.

Thanks to the foreign money flowing in, benchmark indices gained momentum after January and strong buying was seen in sectors like banks, financial services, autos, oil & gas and pharma.

Most stocks in which foreign investors have raised stake are high beta names but there are stocks which are showing signs of growth and investors should take note of that because there's more to this than meets the eye, suggest experts.

“Most stocks that we have seen are yes into a high beta category but we also see some value in these companies. Stocks like Axis Bank, with improved asset quality, Higher NII which was up 18% QoQ, higher profit and drop in gross NPA is a stock that should be part of one's portfolio when the market is in an established uptrend. NCC, on the other hand, offers immense growth opportunity,” Mustafa Nadeem, CEO, Epic Research told Moneycontrol.

“Investors attribute high beta as a riskier asset bet but many high beta stocks are actually wealth creator,” he said.

After subdued January, FII flows picked up in February and March.

Foreign investors were net buyers of Indian assets in the March quarter, but they reduced stake in as many as 206 companies, as per shareholding data collated on April 12.

Companies in which foreign investors reduced their stake include Bajaj Holdings, NTPC, Union Bank of India, ITC, NMDC, IDBI Bank, Hindustan Unilever, Hindustan Zinc, UltraTech Cement, Cadila Healthcare, and JSW Steel.

Most analysts see this as routine profit taking from foreign investors whenever there is a change in trend or cyclicality of the market.

Sector rotation is normal and is done to change or rebalance the portfolio, suggest experts. They exit stocks which may have performed well in the past or previous rally but may not necessarily lead or perform again.

“Many of these stocks had an excellent run in last 4 years and are now trading at expensive valuations so we believe this is just a routine profit taking. We would advice buying these stocks once they are available at attractive valuations,” Atish Matlawala, Sr Analyst, SSJ Finance & Securities told Moneycontrol.

“Investors may get a bit cautious as many would like to stick to stocks where there is money flow or smart money,” he said.

Talking about ITC, Nadeem said it is well covered in many funds but it is usually a dividend factor and not in terms of price change.

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Source: Moneycontrol

Asian shares edge up to nine-month high, European, Japan PMIs awaited

Asian shares were subdued on Thursday after a negative performance on Wall Street, with caution ahead of business surveys in Europe and Japan, and the Good Friday and Easter holidays keeping investors on the sidelines.

MSCI's broadest index of Asia-Pacific shares outside Japan inched up 0.08 percent, trading just below its highest since late July 2018 brushed on Wednesday.

Australian shares advanced a quarter of a percent while Japan's Nikkei was a shade lower.

"We're in this kind of hiatus in the global economy," said Chris Weston, head of research at foreign exchange brokerage Pepperstone in Melbourne.

"People are starting to believe that we're going to see better times in the second quarter and probably into the third quarter as well, and that perhaps the first quarter has been that trough."

Wall Street shares ended in the red on Wednesday, with the S&P 500 falling 0.2 percent as a drop in healthcare equities outweighed upbeat economic data from the United States and China.

The US trade deficit fell to an eight-month low in February as imports from China plunged, data on Wednesday showed.

Separate figures from China earlier in the day showed the world's second-largest economy grew at a steady 6.4 percent pace in the first quarter, defying forecasts for a slowdown. Attention is now turning to how much more stimulus Beijing will apply without triggering more financial risks.

Investors' immediate focus turned to the release of Purchasing Managers Indexes (PMIs) for the manufacturing and service sectors in Europe later on Thursday to provide more clues on the strength of the euro zone economy.

"It's going to be interesting to see if we see some stabilization there in line with what we've been seeing in the stabilization in the Chinese data flow," said Pepperstone's Weston.

A flash manufacturing reading will also be released for Japan.

YEN NEAR 2019 LOW

Market participants are also eyeing signs of progress in U.S.-China trade negotiations.

Washington and Beijing set a tentative timeline for a fresh round of face-to-face meetings ahead of a possible signing ceremony in late May or early June, according to a Wall Street Journal report.

Attorney General William Barr is set to hold a news conference at 1330 GMT to discuss the release of Special Counsel Robert Mueller's report on Russian interference in the 2016 U.S. presidential race.

"The lack of love for the yen, I suppose, is just telling us that people aren't seeing this as a general risk event," said Pepperstone's Weston.

"It's probably worth keeping a beady eye in case something really does come out that shocks market into life."

In the currency market, the safe-haven yen was slightly up at 112.00 yen per dollar, sitting just above a near four-month low of 112.17 brushed overnight.

The euro ticked up to $1.1297, while the Australian dollar was 0.1 percent lower at $0.7173 ahead of job data (0130 GMT).

The dollar index held steady at 97.019 after ending the previous session basically unchanged.

In commodity markets, oil prices were slightly lower as U.S. government data overnight showed inventories drew down less than an industry report had suggested on Tuesday.

US crude was last down 8 cents at $63.68 a barrel, while global benchmark Brent crude futures dipped 7 cents to $71.55.

Spot gold held steady at $1,274.60 per ounce, hovering near its lowest for the year.

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Source: Moneycontrol

Metropolis Healthcare hits record high after Damani’s Bright Star picks 7 lakh shares

Metropolis Healthcare, which debuted on bourses on April 15, hit a record high of Rs 1,005.60 on the NSE after Radhakishan Damani through his firm Bright Star Investment Private Ltd bought 7 lakh shares at an average price of Rs 948.39 on the NSE.

Another fund, Smaller Cap World Fund Inc. also bought 6,86,545 shares of Metropolis Healthcare at an average price of Rs 957.67 on the NSE on April 15.

Metropolis Healthcare, the third largest listed diagnostic chain, raised Rs 1,204 crore through the public issue which was subscribed 5.84 times earlier this month.

Metropolis Healthcare listed at a 9 percent premium to issue price of Rs 880.

After a strong show in the first two days of the listing does it make sense to put in fresh money in Metropolis?

Moneycontrol spoke to several analysts to know what investors should do and most of them said Metropolis Healthcare is a good long-term bet given likely growth in the healthcare sector, company's strong brand name, and strong growth potential.

"Metropolis is available at discount to its listed peer Dr Lal PathLabs based on FY19E earnings. The industry is poised to grow in favour of the organised sector with rising requirement for high-end testing and consolidation in the industry," Nikhil Shetty, Research Analyst - Institutional Research, BP Wealth said.

If one wants to buy, he/she can accumulate the stock below its issue price as it is expected to give double-digit returns in the next one-two years, experts said.

Milin Desai, Analyst, IIFL Securities told Moneycontrol that investors can definitely remain invested for the long term and accumulate in case the price dips below the issue price. One can look at returns of more than 20 percent over the next two years, he added.

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Source: Moneycontrol

Wipro to announce Q4 result today; here are key things to watch out for

Wipro, which will announce its March quarter earnings on April 16, is expected to report a mixed set of numbers. One of the key things to watch out for is the announcement of expected share buyback.

The IT company is expected to report 1.5-2.0 percent growth in dollar revenue and around 1.2-1.6 percent growth in constant currency terms which would be within its guidance of 0-2 percent led by continued momentum in BFSI and digital segment.

"We expect constant currency revenue growth rate of 1.5 percent and cross-currency tailwind of 40 bps. Financial services growth rate could moderate from the recent quarter growth of 17 percent YoY. Spending outlook in financial services is a lot more muted than the same time last year," Kotak said.

Phillip Capital expects IT services constant currency revenue growth of +1.5 percent - near the higher-end of adjusted guidance of 0-2 percent and positive cross currency impact of 20bps.

Brokerages expect the company to give constant currency revenue growth guidance in the range of 0-3 percent.

Kotak expects Wipro to guide for 0.5-2.5 percent revenue growth for June 2019 quarter which is seasonally weak for the company while Phillip Capital sees the same in the range of 0-2 percent.

According to Motilal Oswal, the IT firm may guide for 1-3 percent QoQ growth in constant currency revenue and a small decline in margins due to one-month of wage hikes.

Brokerages expect its operating performance for the March quarter to be weak with contraction in margin.

HDFC Securities expects the company's EBIT margin to decline 64bps QoQ to 19.2 percent, while ICICI Securities sees margins dipping 40 bps QoQ to 19.4 percent from a high base of 19.8 percent attained in Q3FY19.

Key issues to watch for

- performance of healthcare vertical

- comments on sustenance of growth in BFSI vertical

- sustainability of margin recovery achieved in the last two quarters

- FY20 demand outlook and the quantum of buyback.

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Source: Moneycontrol

Infosys hit by slew of downgrades post Q4 results; should you buy, sell or hold?

Infosys, which reported a 10.51 percent year-on-year (YoY) rise in consolidated profit at Rs 4,078 crore for March quarter beating analyst expectations, was hit by a slew of downgrades post-March quarter results.

The Bengaluru-based technology major reported 2.4 percent QoQ growth in revenue but margin at 21.4 percent was below expectations of 22.2 percent.

Also, the IT major lowered its revenue guidance to 7.5-9.5 percent in constant currency terms. The company had set the revenue guidance at 8.5-9 percent in FY19 as opposed to 6-8 percent in FY18.

Reacting to the results, Morgan Stanley, CLSA and Credit Suisse downgraded the stock and slashed its 12-month target price to Rs 650 which roughly translates into a downside of about 13 percent from Friday’s closing price of Rs 743.

Here’s what global brokerage firms recommended for Infosys post Q4 results:

Morgan Stanley: Equal-Weight| Target cut to Rs 700 from Rs 775

Morgan Stanley downgraded Infosys to Equal-Weight from Overweight earlier post March quarter results and also slashed its 12-month target price to Rs 700 from Rs 775 earlier.

Infosys reported a soft Q4 relative to our expectations. The P/E discount to TCS has narrowed but could reverse now, said the note. It also slashed EPS estimates by 2.5/3.9 percent for FY20/21.

EBIT margin of 21.4 percent in Q4 led to a downward revision in margin guidance. Morgan Stanley is of the view that weak margin in Q4 was largely due to low utilisation rates.

Credit Suisse: Underperform| Target cut to Rs 650 from Rs 770 earlier

Credit Suisse downgraded Infosys to Underperform from Neutral earlier post March quarter results and slashed its 12-month target price to Rs 650 from Rs 770 earlier.

It slashed valuation multiple from 18x to 16x on margin disappointment. Growth is picking up for Infosys, but likely to fall short of heightened expectations, said the note.

Another leg down on margin, and there is no comfort on what the floor could be. Arbitrage trade vs TCS could reverse. Credit Suisse slashed FY20/FY21 estimates by 5/6 percent.

Nomura: Reduce; Target: Rs 680

Nomura downgraded Infosys to Reduce post March quarter results with a target price of Rs 680. The downgrade was on the back of weaker growth outlook and likely slower EPS CAGR underpin cautious stance.

The global investment bank slashed FY20-21 EBIT margin by 30-90 bps, leading to 1-4 percent lower EPS estimates. The pending open-market buyback could provide some support.

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Source: Moneycontrol