Infosys Q4 result analysis: Buy, sell or hold? What brokerages suggest

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reported its results for the quarter ended March 2022 post market hours on Wednesday and logged 12 per cent year-on-year rise in its consolidated net profit at Rs 5,686 crore. The Bengaluru-based IT major saw its revenue rise 23 per cent to Rs 32,276 crore in the recently concluded quarter, as against Rs 26,311 crore in the previous corresponding period.


EBIT margin dipped 190 basis points (bps) quarter-on-quarter (QoQ) to 21.6 per cent due to lesser days, lower utilisation, and higher visa costs. The company has guided at a margin of 21-23 per cent for FY23 (100bp cut from its earlier guidance in FY22).





Here’s how leading brokerages have interpreted the numbers.


Nomura


Margin is likely to be a bigger concern for the sector in FY23, given the higher-than-usual salary increments and normalization of discretionary spends like travel and visa costs. Headwinds of high fresher hiring (the company targets over 50,000 in FY23 versus 85,000 in FY22), competitive salary increments , efforts to further drop utilisation towards its comfort zone of 85 per cent (from 87 per cent in 4Q FY22) and return of travel spends will be front loaded for in FY23.


While price hike discussions have started with customers, it will take time for margins to reflect any impact of price hikes. We expect FY23F EBIT margin to drop by around 100bp y-o-y to 22 per cent. We expect Infosys’ revenue growth to continue to outpace that of TCS in FY23. Reiterate Buy rating, but cut target price to Rs 2,050 based on 29x FY24F EPS of Rs 70.74 (vs FY24F EPS of Rs 74.4 previously).


Morgan Stanley


F23 revenue growth guidance stronger-than-expected at 13-15 per cent YoY in constant currency (CC) terms versus our 12-14 per cent estimate. Margin guidance of 21-23 per cent was in-line with our estimate, but below the Street at 22-24 per cent. In a nutshell, the Q4-FY22 numbers were an all-around miss, but good F23 revenue growth guidance.


HSBC Global Research


Since COVID-19 began, IT companies have had a margin tailwind of 600 bps, from improvement in various operating metrics. However, only 100-150bps was retained while the rest of the tailwind was consumed by wage inflation and sub-contracting costs. In FY23e, while wage headwinds may moderate, COVID-19 tailwinds may reverse as well, leaving margin risks to the downside this fiscal year. We downgrade to Hold on lower potential market share gains in FY23, downward risk to profitability, and limited upside to growth estimates; cut target price to Rs 2,040 from Rs 2,225.


Motilal Oswal Securities


Strong headcount addition at 22,000, a robust demand environment, and a robust revenue guidance for FY23 points towards continued strong revenue growth for FY23. We factor in 16 per cent revenue CAGR over FY22-24. We factor in a margin of 22.4 per cent / 23 per cent in FY23/FY24. We have lowered our FY23/FY24 EPS estimate by 5 per cent on slower growth and margin pressure. See Infosys as a key beneficiary of an acceleration in IT spends, given its capabilities around Cloud and Digital transformation. We value the stock at 28x FY24E EPS and reiterate Buy rating.


IDBI Capital


Infosys’ Q4FY22 financial performance was disappointing mainly due to delay in contract sales booking and lower large deals in the life-science vertical. However, Infosys has given robust guidance for FY23E of 13-15 per cent which indicates a healthy demand outlook. The absence of mega deal wins as seen in FY22E makes this guidance even more robust.


The lower margin guidance of 21-23 per cent indicates that Infosys intends to invest and take advantage of robust revenue growth. We expect margins to improve in H2-FY23 and expect a further 60 bps improvement in FY24 to 22.6 per cent. Maintain BUY rating on the stock with revised target price of Rs 2,020 (28x FY24E EPS).
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Twitter: @Pun_ditry

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