Buy This Large Cap IT Software Sector Stock For Rs 1,800 Target Price: HDFC Securities

HDFC Securities, a leading brokerage firm, recently hosted its 6th IT Sector Investor Conference, where Infosys (INFO) Ltd. was represented by Sandeep Mahindroo (Financial Controller and Head Investor Relations), Subhra Das (Principal IR) and Sweta Sheth (IR). The brokerage has given a "Buy" rating with a target price of Rs 1,800 apiece. Infosys is a large cap IT Software Sector company having a market cap of Rs 6,04,698 crore.

Stock Outlook & Returns

The current market price of the stock is Rs 1,435.50 apiece. The 52 week low of the stock is Rs 1,367.15 and the 52-week high is Rs 1,953.90, respectively. The stock over the past 1 week has given a 2.82% negative return and in the past 1 month, gave a 10.02% negative return, respectively. It has given a 16.19% negative return over a year, respectively. Whereas, in the past 3 years, it gave 72.95% positive return. In the past 5 years, it gave a multibagger return of 215.84%.

According to the estimated target price and the current market price, the shares of the company likely to surge by 26%.

Key takeaways

Below are the key highlights of the investor conference with Infosys:

• The overall deal pipeline, including large deals, continues to remain strong, with more emphasis on security, cloud, automation, and customer experience services.
• There are multiple integrated deals that are helping revenue growth in both core as well as digital services. Local Europe clients are a bit circumspect on making large commitments, but past large deals are ramping up without delay.
• Residual wage hike will have lower impact on margins in Q2 as compared to - 150bps impact in Q1FY23. The company is aiming for EBIT margin of 21% for FY23E. Onsite-offshore mix is expected to remain range-bound at the current levels (in mature programs company is able to drive higher offshoring).
• Higher bench availability can support sub-contractor optimization, but cannot materially reduce it. Sub-contracting cost is coming for niche skills; hence, it won't be replaced with fresher addition but higher fresher intake creates cascading upward effect (enabling upward mobility) and can reduce sub contracting dependence over a period of time.
• Despite some signs of caution, retailers are investing in business transformation, customer intimacy, and supply chain and this initiative continues to happen; hence retail vertical is not slowing, barring a few pockets and clients that have raised some issues.
• The margin profile of the manufacturing vertical has come down due to ramp up of large deals like Daimler but over a period of time, manufacturing vertical margin profile is expected to improve.
• Capital allocation is a five-year policy till FY24, which is 85% of FCF (so far paid 73% of the FCF so there's room to catch up).

Buy for Rs 1,800 target price

Infosys Ltd's growth leadership within tier-1 is backed by prowess in large account expansion, consistent improvement in large deal engine, and strong digital portfolio, which is a key positive for revenue visibility in the near term. We have factored in USD revenue growth of 14.5/12.7% for FY23/24E and EBITM at 21.1/21.9% for FY23/24E, which is towards the lower end of its guidance (21-23% for FY23E). Our target price of INR 1,800 is derived by assigning 26x FY24E EPS; maintain BUY on INFO.

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.