Infosys share price dropped nearly 2% on Monday morning to trade at Rs 1,480 per share as investors reacted to the company’s soft growth in net profit. The stock closed at Rs 1,502.85 apiece, down 0.23 per cent. Infosys, on Sunday evening, informed the bourses that its net profit rose just 3.1% on-year basis in the April-June quarter, missing estimates pinned by Dalal Street analysts. Revenue of the company was up 23.6% from the same quarter last year. “Infosys reported a subdued performance in 1QFY23 with EBIT margin coming in at 20.1%, 163 bps below our estimate of 20.7%,” said Mitul Shah – Head of Research at Reliance Securities. Analysts, however, still remain bullish on the information technology giant, reiterating their ‘Buy’ calls. Infosys has raised its revenue guidance.
Analysts at Kotak Securities are bullish on the stock and draw two key points from the April-June earnings. “EBIT margin decline was not a surprise; however, the decline in manufacturing vertical margins was, and weak TCV points towards a slowdown but is already part of our estimates,” they said. Kotak Securities cut FY2023-25E EPS by 2-4% and Fair Value to Rs 1,690, valuing the stock at ~25X FY2024E EPS. “Maintain BUY — we believe Infosys will continue to lead on growth and with margin improvement from hereon,” the brokerage firm said in a report.
Reading between the lines, ICICI Securities believes Infosys results hint towards demand normalisation for the IT sector. “Though upgrade in revenue guidance from 13-15% YoY CC to 14-16% (implying CQGR of 1.6-2.6% CC terms) indicates healthy near-term demand, management commentary on pockets of weakness in certain segments such as mortgage, softness in BFSI for last two quarters and lower TCV wins, point towards demand normalisation,” they said. “We do believe Infosys is well positioned to gain market share and is suitably equipped for industry-leading growth. However, elevated margin pressures along with slowing TCV momentum in tandem with the weak macro-environment lead us to retain our HOLD rating,” Analysts added. The target price has been revised down to Rs 1,434 per share.
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