Stock to Buy: This Multibagger IT Stock Is Top Pick For November, Brokerage Sees 20% Returns, Buy

Leading brokerage firm KR Choksey has placed a buy call on Infosys Limited (INFO) in its November 2022 Top Idea Picks stocks. The brokerage has estimated a target price of Rs 1,805 per share for the stock and sees a potential upside of up to 20% from its current level considering the given target price. INFO is a Bangalore-based Indian multinational corporation that provides business consulting, information technology and outsourcing services. Its key services include application development, product co-development and system implementation/system engineering. INFO has specialized expertise in the insurance, banking, telecommunication, and manufacturing sectors.

Stock Outlook & Returns

INFO is among the top large-cap IT companies in India having a market cap of Rs 6,37,065 crore. On NSE, the current market price of INFO stood at Rs 1,514 per share. Its 52 week high level as on 17 January 2022 is Rs 1,953.90 and its 52-week low as on 26 September 2022 is Rs 1,355, respectively.

The stock in the past 1 month has performed well as it surged 5.92%. However, in the past 3 months, it fell, giving a negative return of 5.37% and in the past 1 year 11.39%, respectively. It has given multibagger returns of 113.54% in 3 years and 226.77% in the past 5 years.

Investment Rationale

Infosys reported a +4% CC QoQ revenue growth at USD 4,555mn and was led by digital revenue growing at +3.8% QoQ while core services remained flat sequentially (+0.4% QoQ). Management is witnessing acceleration in core services, led by increased demand for cost-efficiency programs and automation. We see weakness in Retail, Hi-Tech, Financials (Mortgages), and Telecom as it has started seeing some deal-related slowdowns in these segments. The manufacturing vertical grew 8.4% QoQ in USD terms, with strong numbers in Europe as well as the US. Other verticals grew quite well, especially in financial services and life sciences, while retail and communications have underperformed.

TCV of large deals signed in 2QFY23 grew at 28% YoY, and was aided by a strong pickup in cost optimization-related work. Net new deal wins were 54% of the total deal wins and the remaining was renewals. A 28% growth may seem impressive but has to be seen against the lower base (weak signings) in the first quarter. Net new large deal signings stood at USD 1.4bn in Q2FY23. Hiring is moderated in Q2 with +10K employees but total hiring crossed over 43K employees in the first half of FY23, resulting in drop in utilization rate by 100bps to multi-quarter low of 76.6% in second quarter.

EBIT margin grew 150bp QoQ at 21.5% in 2QFY23, above our estimate of 20.2%, supported by +70bps from FX, +130bps on contract profitability and efficiencies (lower sub-con) and -40bps from senior workforce wage increase. The management narrowed its margin guidance to 21-22% from 21-23% earlier. We view the lower end as achievable.

Buy For Rs 1,805/share target price

"We have assigned a P/E multiple of 25x to the FY24E estimated EPS of INR 72.2 to arrive at a target price of INR 1,805, with an upside of 19.1%. Accordingly, we maintain our rating to a "BUY" to the stock," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of KR Choksey. 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.