Analysts raised price targets and earnings estimates for Infosys Ltd. after India’s second-largest software services provider beat forecasts in the third quarter and hiked revenue and margin guidance for the ongoing fiscal.
The company’s revenue rose 5.5% over the preceding quarter to Rs 25,927 crore in the October-December period. Its dollar revenue increased 6.2%. Infosys’ operating margin remained steady at 25.4% against 25.3% despite wage hikes and cross-currency headwinds.
Infosys now expects FY21 revenue to grow at 4.5-5% compared with 2-3% growth forecast earlier. It has also hiked operating margin guidance to 24-24.5% from 23-24% predicted previously.
The company, in a media statement, said large deal total contract was at all time high of $7.13 billion.
According to analysts, a faster and stronger recovery of the global economy after Covid-19, higher-than-expected revenue and margin growth, along with favourable currency movement, are some of the key catalysts for the stock.
Shares recovered from the day's low after declining as much as 5% to Rs 1,318. The stock currently trades 0.7% lower at Rs 1,377. Of the 47 analysts tracking Infosys, 41 have a ‘buy’ rating, five suggest a ‘hold’ and one recommends a ‘sell’.
Here’s what analysts have to say:
Jefferies
- Maintains ‘buy’ rating; raises price target to Rs 1,620 from Rs 1,550 apiece.
- Revenue growth was the key positive surprise.
- Margins disappointed in the context of high growth.
- Strategic repositioning towards digital capabilities places it well to drive strong client engagement.
- Strong deal win momentum and market share gains to drive industry leading growth of 10-13% over FY22-23.
- Valuations elevated but justified on account of strong growth and deal momentum.
- Raise estimates by 1-4% to factor in the beat and expects 12% revenue and EPS CAGR over FY21-23.
CLSA
- Maintains ‘buy’ rating; hikes price target to Rs 1,620 apiece from Rs 1,480.
- Revenue and deal win momentum will help Infosys exit FY21 at the higher end of the guided growth range.
- Base set for a double-digit revenue CAGR during FY22-23.
- Ramp-up in Daimler deal can add an incremental 3% to the FY22 growth rate.
- Expects FY22 and FY23 EBIT margin at the upper end of the guidance.
- Increased sales aggression and best-in-class execution are helping gain disproportionate share.
- “Pull back on our conservative estimates to raise EPS estimates by 4-5%.”
Emkay
- Maintains ‘buy’ rating; raises price target to Rs 1,550 apiece from Rs 1,470.
- Strong operating performance, broad-based revenue growth and guidance a positive.
- Revenue acceleration, record high utilisation and offshore shift led to beat on margins.
- Raises FY21, FY22 and FY23 EPS estimates by 3.5%, 5.5% and 5.1%, respectively, on the back of strong Q3.
- Expects valuation gap with TCS to narrow further on the back of sustained strong operating performance.
Motilal Oswal
- Maintains ‘buy’ rating; hikes price target to Rs 1,600 apiece from Rs 1,500.
- Performance indicative of technical capabilities and strong sales presence.
- Growth over near term to be driven by deal wins.
- Some of the margin tailwinds are not sustainable.
- Expects Infosys to be a key beneficiary of recovery in IT spends in FY22.
- Prefers Infosys over TCS on its headroom for increase in growth potential, further reinforced by this result.
- Expects valuation divergence with TCS to narrow.
IDBI Capital Markets
- Downgrades to ‘accumulate’ from ‘buy’ but raises price target to Rs 1,554 apiece from Rs 1,311.
- Raises U.S. dollar revenue estimates for FY21, FY22 and FY23 by 2.8%, 4.8% and 4.6%, respectively.
- Raises FY21, FY22 and FY23 EPS estimates by 4.1%, 4.6% and 4.8%, respectively.
- Forecasts revenue and EPS CAGR of 12.3% and 13.9%, respectively, over FY21-23
- Raises price target given strong growth and RoE of over 30%.
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