After Whistleblower Blow to Infosys, Here’s What Brokerages Are Saying on the Crisis

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posted on 4 years ago — updated on 1 second ago

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Global brokerage firm Jefferies said multiple allegations were particularly related to large deals and the letter alleged that many of them had negligible margins.

Infosys Ltd shares posted their biggest single-day drop in the last six years on Tuesday, i.e. 22 October, after a whistleblower complaint alleged “unethical practices” by the company’s top executives to boost profit and revenue. The stock was down 16% at day’s low, erasing more than Rs 42,000 crore from its market cap. Brokerages said the whistleblower complaint against Infosys is expected to keep the stock under pressure for the near term, adding that the allegations could prompt an investigation by the US Securities and Exchange Commission (SEC).

Global brokerage firm Jefferies said multiple allegations were particularly related to large deals and the letter alleged that many of them had negligible margins. According to Jefferies, the issue is likely to remain an overhang on the stock in the near term. “Every 100 bps lower margin impacts FY20/21 EPS (earnings per share) estimates by 4.3%, hence the P/E de-rating could be the bigger risk while the recent re-rating was driven by hopes of sustainable growth outperformance,” it said.

Morgan Stanley said the whistleblower news could put the stock under pressure. “It comes as a setback for the company and could de-rate multiples until clarity emerges,” the brokerage firm said, noting that the stock has been volatile for the last six years due to idiosyncratic issues. Saying that, Morgan Stanley gave an ‘equal-weight’ rating on Infosys shares with a target price at Rs 805 apiece.

Another global brokerage firm Credit Suisse said the nature of allegations makes this a serious matter and, if proven, could lead to the termination of the company’s CEO and CFO.

Domestic brokerage firm Reliance Securities, meanwhile said, that the Infosys matter equates to a corporate governance issue. “Deputy CFO has also quit. This in itself is an indirect admission that something is rotten. Stock will now languish 10-15% lower in the near term. It is also disappointing to see that a company that has long been viewed as a ‘poster boy’ of corporate governance in India has seemingly fallen to such levels,” It said in a note.