Buy Infosys For A Potential Upside of 22% Says Sharekhan

Investment rationale

According to Sharekhan "Headline Q4FY22 numbers came in weak for Infosys owing to seasonality. However, demand trends stay strong as Infosys' hiring of freshers is robust, client metrics are improving, deal wins stay steady along with a strong deal pipeline and rapid spends on cloud and digital transformation programs. The company disappointed with a muted constant currency (CC) revenue growth of 1.2% q-o-q, after clocking excellent revenue growth for the last three quarters. Reported US Dollar revenues grew by 0.7% q-o-q to $4,280 million, below our expectations."

The brokerage has said "EBIT margin contracted by 193 bps q-o-q to 21.6%, much lower than our estimates, owing to lower working calendar days, client contractual provisions, lower utilisation and higher visa expenses. Infosys guided for better than expected revenue growth in the range of 13-15% in constant currency, implies revenue CQGR of 2.7-3.4% for the quarters of FY2023E. However, margin guidance remained 100bps below our expectations at 21-23%. Further, attrition continues to rise and will put supply-side pressure in the near-term."

Buy for a target price of Rs. 2,150

The brokerage has claimed "We believe Infosys is well-equipped to deliver industry-leading organic growth among the large peers in the medium term, given strong digital capabilities to participate in clients' digital transformation journey and execute core modernization works. We expect Infosys to report USD revenue and earnings growth of 14.2% and 13.7%, respectively, over FY2022-FY2024E. At CMP, the stock trades at 29x/26x its FY2023E/FY2024E earnings, which is justified, given strong growth potential, robust deal pipeline, and market share gains."

"We like Infosys because of its strong digital competencies, healthy capital allocation policy and prudent investments in capabilities that will be required in future. Hence, we believe any correction in the stock price would offer good investment opportunity from a long-term perspective. Hence, we maintain a Buy rating on the stock with a revised price target (PT) of Rs. 2,150," Sharekhan has said.

Rupee appreciation and/or adverse cross-currency movements, slackening pace in deal closures, and/or constraints in local talent supply in the US would affect earnings are the key risks of the stock according to the brokerage.

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.