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Revenue miss, yet brokerages bullish on Infosys post Q4 numbers; here's why

Topics Infosys  | Infosys results | Markets

Shares of information technology (IT) bellwether Infosys slipped as much as 6 per cent in intra-day trade on Thursday after the company's March quarter revenue growth missed Street's estimates, resulting in profit-booking in the counter. The sharp correction pushed Infosys to the bottom of the table among the Sensex pack.

Despite the miss on sequential revenue growth, analysts remain bullish on Infosys as they believe underlying metrics such as headcount addition, fresher hiring along with deal win momentum seen through FY21, should continue to aid the company's growth leadership in FY22 as well. But they believe the near-term correction in the prices is likely.

"Akin to TCS, lack of positive surprises limits any earnings upgrades and could lead to some near term price correction after the expectations in the run-up to results," said JM Financial in a note. The brokerage recommends adding the stock on account of any near-term weakness to play industry growth leadership.

Infosys on Wednesday posted a 17.47 per cent year-on-year (YoY) growth in net profit at Rs 5,076 crore for the March quarter of the financial year 2020-21 (Q4FY21) as against Rs 4,321 crore posted in the same period last fiscal. Sequentially, however, the figure dipped by 2.32 per cent from Rs 5,197 crore posted in the December quarter of FY21. READ MORE

The revenue for the quarter under review, meanwhile, stood at Rs 26,311 crore, up 13.08 per cent YoY and 1.5 per cent quarter-on-quarter (QoQ). However, revenue growth of 2 per cent QoQ in constant currency (CC) terms fell short of consensus estimates of +3.2 per cent.

Here's what top brokerages said:

Jefferies | BUY | Target Price: Rs 1,600
Infosys' success on large deals has helped the company gain market share and will help accelerate its topline growth beyond its trend growth of 8-9 per cent. While the company witnessed topline growth of 7.8 per cent CAGR over FY17-20, it is likely to deliver a higher 10.5 per cent CAGR over FY20-23. We tweak our estimates marginally post the results and expect Infosys to deliver 13 per cent revenue CAGR and 12 per cent EPS CAGR over FY21-23. We maintain 'Buy' with a revised target of Rs 1,600 based on 28x FY23E EPS.

Edelweiss Financial | BUY | Target Price: Rs 2,124
While Q4FY21 revenue was a slight dampener, we expect strong growth in FY22 led by robust demand. We reiterate that we are only at the start of this tech upcycle. The stock trades at 25x FY22E. We maintain ‘BUY/SO’ with an unchanged target price of Rs 2,124 (36x Q2FY23E) as we roll forward to Q2FY23E.

YES Securities | BUY | Target Price: Rs 1,560
While the revenue performance was less than expected in the quarter, but robust deal booking and deal pipeline in digital, cloud and data offer strong revenue growth visibility for FY22 and ahead. It should be able to achieve a stable operating margin for FY22, supported by positive operating leverage, even though, it faces a headwind in terms of increased cost such as salary hikes and increased travel expense. Share buyback would restrict downside risk in the near term. The stock trades at 22.8x on FY23 earnings. Initiate coverage on the stock with a 'Buy' Rating. 

IDBI Capital | BUY | Target Price: Rs 1,505
We increase our FY22/23 revenue (in dollar terms) by 2-1.2 per cent, reduce EBIT margin by 65-67bps to 23.8-24 per cent and cut EPS by 1.5-3.2 per cent. We now forecast revenue/EPS CAGR of 12.8 per cent/12.7 per cent over FY21-23E. We maintain 'Accumulate' with a new target price of Rs 1,505 (versus Rs 1,554 earlier) based on 26x FY23E.

ICICI Securities | BUY | Target Price: Rs 1,600
Revenue growth (2 per cent QoQ, CC) fell short of our and consensus expectations (+3/3.2 per cent). It should be noted this is roughly in line with the average March quarter growth of the company pre-Covid. This further corroborates our arguments that industry growth is unlikely to accelerate materially post-Covid. . Both revenue growth and EBIT margin guidance for FY22 were in line with consensus. However, understanding FX assumptions baked into margin guidance is the key – (could it be 21-23 per cent without the recent rupee depreciation?) 

Despite the multiple disappointments and demanding valuations (27x FY22E EPS), we remain buyers given Infosys’ relative business momentum in the sector. The intense second wave in India, depreciating rupee and buyback can offer tactical price support.

JM Financial | BUY | Target Price: Rs 1,520
While our FY22/23E EPS remain broadly unchanged, our target price increases a tad to Rs 1,520 (based on an unchanged 25x P/E as we roll over to June’23 (from Mar’23 earlier). We continue to back Infosys as our top pick and likely growth leadership continuing into FY22E aided by deal win momentum and recommend adding into any near term stock weakness. We maintain 'Buy' with a target price of Rs 1,520.


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