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Infy: EPS Declines and Guidance Is Negative

Infosys announced their Q4 results, with a profit DECLINE year-on-year, of 0.9% to 1,600 cr. EPS has gone down to Rs. 28.02 from 28.33, which is a 1% decline. Revenues are up 5.5% over last year, ending at 5944 cr. for the quarter, and while profit before taxes was up 6.5%, taxes went from 302 cr. to 441 cr., which pushed the profit down.

For the whole year, Infy’s revenues went to 22,742 cr., a 5% move up.

Profits post tax were at 6,219 cr., a 4.1% increase. EPS, with stock options going up, went up a lower 3.9% to 109.

At the current price of nearly 2800, the stock quotes at a 25+ P/E.

What’s disconcerting is their guidance. Infy will earn an EPS of about Rs. 24.5 next quarter, they say, which is a Year-on-Year DECLINE of 9%. And it’s not one-off – for the whole next year, they expect EPS growth to range from –2% to +2.1%. Technically, for TWO full years, there will be no EPS growth of any sort.

As expected, stock markets loved these results, for reasons that eventually the media will quote as “Infosys goes up as butterflies flap their wings praising results”. You see, “WE DON”T KNOW WHY INFOSYS WENT UP. REALLY.” is not a good tag line on TV channels or financial web sites, because if we realize the experts are as clueless as us, we might as well stop watching them on TV, which makes a) the experts really fidgety and b) this a really long sentence.

I, on the other hand, will happily admit I’m a moron, and I didn’t even see Infy results till after market hours, and I really don’t know why the stock went up. Honest. In an ironical twist, my system asked me to please go long Infosys 2800 calls, which I did (Bought at 27.5, sold at 46) and promptly earned a gazillion percent.Technically 60%, but I have permission to exaggerate.

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And alook at the one year chart:

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Volumes do not look very exciting at the moment, but the primary trend is still up.

Feeling smug but obviously this was an outlier trade. Such an opportunity does not come every day.

What I can say to traders: Be Very Careful When Being Short Straddles. The volatility looks like it will explode very soon.

  • Data Zone says:

    >Hello Deepak,

    I enjoy reading your posts.

    You write well – which means everything is expressed in simple words, information is authentic, thoughts or issues covered are complex / difficult (yet put across in simple language).

    Congratulations. Please keep up the blog.

    Best wishes

    Rajeev

  • Anonymous says:

    >Hi Deepak,

    Love your blog! 🙂 Could you recommend a good online broker for someone interested in commodities as well as equities and not afraid of complexity?

    I'm with ICICIDirect, but they don't offer commodity trading and the interface sux. Have read a lot of reviews, but no clear winner has yet emerged.

    Any suggestions? What platform do you use?

  • Sonam says:

    >Nice post dear nice way to explain in graphical form i like it