Broking firm, Motilal Oswal Institutional Equities has suggested buying the stock of Infosys with a price target of Rs 2000 on the stock, which implies a 22% upside from the current levels of Rs 1629.
Disappointing growth margin under pressure
Infosys reported a weak growth of 1.2% QoQ CC, below our estimate of 2.8%, on account of seasonality, the impact from the COVID-19 pandemic, and client provisions. "Large deal TCV of USD2.3 billion was a tad soft (net new at 48%). However, the management indicated good traction in its large deal pipeline and reiterated that the demand remains strong," the brokerage has said.
What the management of Infosys is saying?
According to Motilal Oswal and according to the management, revenue was impacted by seasonality, the COVID-19 pandemic, and client provisions created in 4QFY22 (less than 1% of revenue and expected to reverse going forward).
Headwinds and tailwinds in the near term
According to Motilal Oswal, margin headwinds for FY23 include travel costs, on-site-offshore mix, and utilization. Reduced dependency on sub-contractor costs and efficiencies from automation are margin tailwinds for FY23.
Valuations and view on Infosys
Infosys posted weak earnings in 4QFY22 with slow growth and a meaningful dip in margin. "Though growth in 4QFY22 was muted, demand remains intact and the order book remains strong. The management's FY23 growth guidance and high headcount addition provide further visibility on demand," the brokerage has said.
Target price of Rs 2000
Expect Infosys to be a key beneficiary of an acceleration in IT spends. "Based on our revised estimates, the stock is currently trading at 25x FY24 EPS. We value the stock at 28x FY24E EPS, implying a target price of Rs 2,000 per share," the brokerage has said.