Buy This Large Cap IT Stock For 28% Potential Upside, Delivered Over 190% Returns In 5 Years

Yes Securities bets on the Infosys Limited stocks, suggests buy for a target price of Rs 1848 apiece. The stock has the potential to jump 28% in 12 months, considering the estimated Target Price and the Current Market Price of the stock. The management expects the margin to broadly improve sequentially over the next 3 quarters going ahead and that should lead to achieving a lower range of the 21‐23% EBIT margin band. It aims to use all operating margin levers such as improving employee pyramid, better utilization and price increase to support margin for FY23.

Stock Outlook & Returns

Infosys Limited's stock today closed at Rs 1451.15 apiece after a sharp fall of 3.51% from its previous close of Rs 1,503.60 apiece. It was opened at Rs 1,496.65 apiece. Currently, it is trading Rs 84 above its 52-week low level of Rs 1,367.15 apiece and Rs 502.75 apiece below its 52-week high level of Rs 1,953.90 apiece.

The shares of the company in the past 1 week have fallen 2.22% and moved up by 0.7%, respectively. In the past 1 year, it has given a negative return of 9.52%. however, in the past 3 and 5 years, its shares have come up with a strong positive return of 84.39% and 191.97%, respectively.

Its Return on Equity (ROE) is 29.34%. TTM PE ratio is 27.61. The P/B ratio is 8.06. TTM EPS is Rs 52.55. the company's Debt to equity ratio is 0. It is a debt-free large-cap IT company with a market capitalization of Rs 610,5888.88 crore.

Q1FY23 Result Highlights

• Reported revenue of Rs 344.7bn(up 6.8% QoQ in INR terms, up 3.8% QoQ in USD terms).The sequential growth was broadbased across verticals, with strong uptick seen in Manufacturing( up 46% YoY), Communication( up 24.7% YoY).
• Digital now contributes 61% to revenue compared to 59.2% in Q4FY22.
• EBIT margin declined by 150 bps QoQ to 20.1%, led by higher direct cost that grew 9.5% QoQ.
• Large deal TCV was slightly muted at $1.7bn( vs $2.3bn in Q4FY22 and $2.6bn in Q1FY22). The volume of mid/ small sized deals have increased in last few quarters.
• Offshore effort mix declined by 30 bps QoQ to 75.7%. Added 106 clients during the quarter compared to 110 in Q4FY22.
• Added ~21k employees( 6.5% QoQ) in the quarter to reach headcount of 3,35,186. LTM Attrition increased by 70 bps QoQ to 28.4%.
• Excluding trainees, utilization was down 230 bps QoQ to 84.7%.
• DSO reduced by 4 days QoQ to 63 days in the quarter.
• Cash and investments was down to $4.4bn compared to $4.9bn as of Q4FY22.
• Increased FY23 revenue growth guidance to 14‐16% compared to 13‐15% earlier guidance; Maintained EBIT margin guidance at 21% to 23%.

Yes Securities Suggests buy for Rs 1848 apiece

Commenting on the Q1FY23 results of the company, the brokerage said, "Overall, it reported mixed financial performance for the quarter as revenue was in line with estimates; but the EBIT margin was below estimates, on supply-side pressure and higher Sales and Marketing costs The outlook remains strong led by robust demand environment and that is also reflected in increased revenue growth guidance of 14‐ 16% in cc terms for FY23. Deal pipeline remains strong and that provides strong revenue visibility. It continues to invest in scaling up its cloud offerings and automation tools to capitalize on the demand environment. Certain cost related to travel and admin are expected to come back but with improving employee pyramid and moderation in employee attrition, it is expected to report sequential improvement in margin over next 3 quarters. Hybrid model of work should help to optimize admin costs.

The brokerage added, "We estimate revenue CAGR of 15.3% over FY22‐24E with average EBIT margin of 22.7%. We maintain BUY rating on the stock with revised target price of Rs 1,848 at 25x on FY24E EPS. We have cut down our target valuation PE multiple from 27.5x to 25.0x to account for higher cost of capital (WACC) in this environment of high macroeconomic uncertainty. Trades at PER 20.4x on FY24E EPS."

Disclaimer

The stock has been picked from the brokerage report of Yes 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 taking any investment decision.