IT major Infosys reported a weak sequential growth of 1.2 per cent in the fourth quarter of FY22 on account of seasonality, the impact from the COVID-19 pandemic, and client provisions, analysts said. Despite muted growth in the last quarter of the previous fiscal, analysts said that demand remained intact and the order book remained strong. Research and brokerage firms such as Motilal Oswal Financial, Emkay Financial Services, and Reliance Securities have given buy ratings to the stock, and see up to 28.7 per cent upside potential in the IT stock, going ahead. Infosys reported a 12% on-year growth in net profits to Rs 5,686 crore during the January-March quarter, while revenue surged 22.7% to Rs 32,276 crore. It also recommended a final dividend of Rs 16 per equity.
Motilal Oswal Financial Services
Buy, Rally: 14%
Motilal Oswal Financial Services has lowered its FY23/FY24 EPS estimate by 5% on slower growth and margin pressure. It views Infosys as a key beneficiary of an acceleration in IT spends, given its capabilities around Cloud and Digital transformation. The brokerage firm values the stock at 28x FY24E EPS and reiterate its buy rating. It noted that the management’s FY23 growth guidance and high headcount addition provide further visibility on demand. It expects the IT major to deliver margin on the higher side of its guidance band, with strong growth and reduced dependence on sub-contractors as attrition falls.
Emkay Global Financial Services
Buy; Rally: 12.7%
Operating performance remained weak due to seasonality, a Covid-related impact in the early part of the quarter and a client related contractual provision (likely to be recovered in FY23). The research and brokerage firm has cut FY23/FY24 estimates by 7.2%/4.9%, factoring in the Q4 miss and lower margin guidance. The operating performance miss would weigh on the stock in the near term. It has recommended to buy the stock with a revised target price of Rs 1,970 at 28x Mar’24E EPS, considering broad-based demand, steady market share gain and robust cash generation. Infosys has guided for 13-15% on-year CC growth in FY23, implying a 2.7-3.4% compound quarterly growth rate (CQGR). EBITM (earnings before interest taxes and management) is expected to be within the 21-23% range.
Reliance Securities
Buy; Rally: 28.7%
Infosys reported a subdued 4QFY22 performance. Revenue, as well as margins, were below Reliance Securities’ expectations. Considering the industry-leading double-digit revenue growth, rising share of digital business (58.5% of revenue), elevated EBIT margin levels versus pre-Covid levels, and a consistent capital allocation policy, the research and brokerage firm has a buy recommendation at present with a 1-year target price of Rs 2,250, valuing the stock at 30x FY24E earnings.
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