Analysts said the maintenance of FY22 Ebit margin projection at 22-24 per cent range and raising of FY21 revenue guidance to 14-16 per cent from 12-14 per cent was much in line with expectations, but there is ample scope for improvement in the latter, as the revenue guidance was conservative and did not fully factor in the growth prospects. Margin expectations, however, need to be tapered a bit, they said.
For now, analysts have cut FY22 earnings estimates by 2-6 per cent, but suggested at least 200 basis points upside potential in revenue growth going ahead.
By 12.20 pm, shares of Infosys traded 0.77 per cent higher at Rs 1,589 on BSE.
expects Infosys to lead Tier I IT pack on revenue growth performance for the second year in a row. “We believe the demand represents just the beginning of a mega upcycle, which will last for another 3-4 years,” said Edelweiss Securities.
“We expect Infosys to deliver another year as the current one does not fully factor in strong technology demand and execution of its record high deal wins,” said Motilal Oswal Securities.
The IT major logged 16.9 per cent YoY revenue growth in constant currency terms, making it the best first quarter in a decade. The growth was better than 16.4 per cent expansion for TCS, whose numbers were aided by a weaker base. Infosys’ revised revenue growth outlook implied a 2.4-3.6 per cent growth in the next three quarters.
The company reported large deal wins worth $2.6 billion for the quarter, up 30 per cent sequentially. The deal wins, however, included a higher share of renewals.
Analysts said attrition at the IT major worsened sequentially and Infosys started reporting it on a last 12-month LTM basis , like others in the industry, rather than on quarterly annualised basis. That is why the absolute number looked low, they said.
“With seasonality, we believe the Street is building in a strong Q2FY22 (5 per cent QoQ growth) with relatively weak H2FY22. The very large net new number in FY21 total TCV of $14.1 billion (66 per cent net new, 2.9 times FY20) and the good June quarter TCV will help deliver 17 per cent revenue growth in FY22,” said Nirmal Bang Institutional Equities
This brokerage continues to keep Infosys’ discount to TCS target PE multiple constant at 10 per cent. The 600 bps difference in constant currency growth between Infosys and TCS in FY21 in Infosys’ favour would support calls for the latter to trade at par with TCS, but the brokerage believes this is a short-term phenomenon.
“We believe TCS is superior from capability, margin and ROIC metrics perspective and will continue to be our valuation benchmark. We expect the growth differential to materially narrow in FY22 and beyond between the two companies. Also, unlike the YoY decline in EBIT margin one will see in Infosys, we believe that EBIT margin for TCS will likely hold up, if not improve. We believe the buyback announced by Infosys could support its stock price in the near term,” Nirmal Bang said.
ICICI Securities has raised its target price on Infosys to Rs 1,815, as it valued the stock in line with the multiples of TCS, given its consistent outperformance over the previous two years.
ICICI Securities said the impending wage hikes in September, potential attrition interventions, high utilisations at 89 per cent (ex-trainees), higher fresher hiring of 35,000 (against earlier plan of 25,000), revival of discretionary costs, and large deal ramp-up costs may mean exit margins may rhyme with that of FY19.
“This implies FY23 margins will likely trend to FY20 levels unless the company is able to pull off price increases or rupee depreciates meaningfully. Earnings miss this quarter and subdued margin expectations lead to 6 per cent downgrade to our FY22-FY23 EPS,” it said.
Edelweiss sees the stock at Rs 2,124, Motilal Oswal at Rs 1,770, JM Financial at Rs 1,650 and Nirmal Bang at Rs 1,614.
