Buying Infosys with a target price of INR 2,310 suggests Motilal Oswal
Rationale for the investment for Infosys according to Motilal Oswal
- The growth of manufacturing at 3TFY22 was aided by an acceleration of the deal with Daimler. Management is seeing strong traction in the areas of smart manufacturing and IoT. Infosys is seeing very good traction in digital and cloud initiatives. Management has further improved its forecast for revenue growth. The same value now stands at 19.5-20% YoY CC (v / s its previous forecast of 16.5-17.5% YoY CC). The demand environment is so strong that he doesn’t want to leave anything on the table. Thus, it continues the pace of hiring and subcontracting despite the costs. It now has a more recent hiring target of 55,000 in FY22 from 45,000 earlier and higher prices are pouring in new offerings which should improve the margin in FY 23.
- Infosys reported 7% QoQ CC growth, ahead of our estimate of 4.8%, thanks to an overall performance. The TCV of large transactions stood at $ 2.53 billion (new net at 44%). Management indicated a pull in large deals and pointed out that the deal pipeline was the highest in a very long time.
- The EBIT margin only declined by 10bp QoQ to 23.5%, in line with our estimate, despite a slowdown in employee additions (12.5k), higher outsourcing and lower utilization (-70 bp QoQ) at 3QFY22. Strong revenue growth resulted in PAT growth of 7.2% QoQ to INR58b.
- With an exceptional performance in the 3rd quarter, Infosys increased its revenue growth forecast for fiscal year 22 in USD to 19.5-20% year-on-year (from 16.5 to 17.5%). While we anticipate a more modest increase in guidance, growth in 3Q will ensure that its revenue growth for FY22 will again exceed its latest forecast by 100bp. Good revenue growth in FY2HFY22 will also help it generate high growth among teens in FY23 which would be viewed positively by investors.
- Additionally, comments about improving pricing and attrition should allay margin concerns going forward. While LTM attrition increased sharply (550bp), management indicated that it has stabilized on an annualized quarterly basis (a sentiment echoed by its peers as well) and that it should start to moderate at the end of the year. ‘to come up. We expect the company to improve its EBIT margin by 60bps to 24.3% in FY23.
Buy with a target price of INR 2,310
Motilal Oswal said in his research report that “Infosys performed strongly during 3TFY22. We expect it to show growth in the top quartile in FY22 given its strong capabilities and ramping up in big contracts. We expect the margin to hold at the top. the end of its forecast range, driven by: 1) strong revenue growth and the resulting operating leverage, 2) further flattening of the pyramid and 3) continued operational efficiency measures . to normalize over the next few quarters. “
The brokerage also asserted that “Infosys remains our top choice in the IT services space due to its leeway for increased growth potential, which was further bolstered by its 3QFY22 earnings. As Infosys has outperformed TCS, we do not expect any valuation divergence between the two Based on our revised estimates, the stock is currently trading at 28x FY23E EPS. We value 30x FY24E EPS, implying a target price of INR 2,310. “
The above stock was selected in the Motilal Oswal brokerage report. Investing in stocks presents a risk of financial loss. Investors should therefore exercise caution. Greynium Information Technologies, the author and the brokerage are not responsible for any losses caused as a result of decisions based on the article.