Infosys Q2 Results: Brokerages Raise Price Targets After Earnings Beat; Shares Rise
Here's what brokerages made of Infosys' Q2 showing.
Shares of Infosys Ltd. gained after analysts maintained bullish ratings and increased target prices on the stock as India's second-largest software services provider beat earnings estimates and raised full-year growth forecasts.
Buoyed by deal wins worth $2.1 billion (about Rs 15,800 crore at Thursday's exchange rate) in the quarter ended September, Infosys raised its revenue growth estimate to 16.5-17.5% for the ongoing fiscal from 14-16% earlier. It, however, maintained operating profit margin forecast at 22-24%.
Q2 Highlights
Revenue rose 6.1% sequentially to Rs 29,602 crore against the Rs 29,365.8-crore Bloomberg estimate.
Net profit rose 4.4% to Rs 5,421 crore against the Rs 5,288-crore Bloomberg forecast.
EBIT increased 5.6% to Rs 6,972 crore against Rs 6,636.7-crore analyst consensus.
EBIT margin contracted 10 basis points to 23.6%, owing to supply-side challenges and wage hikes.
Shares of Infosys gained as much as 4.3%, to Rs 1,783.6 apiece. Of the 49 analysts tracking the company, 44 have a ‘buy’ rating, two suggest a ‘hold’ and three recommend a ‘sell’, according to Bloomberg data. The 12-month consensus price target implies upside of 13%.
Here's what brokerages made of Infosys' Q2 showing:
Morgan Stanley
Maintains 'overweight' rating at a target price of Rs 1,920, implying a potential upside of 12%.
Q2 performance strong but sees softer large deal wins and rising attrition rates, plus margin headwinds, as key negatives in the second half.
Partial wage hikes for senior employees and intervention for selective skill sets, continued increase in attrition and higher backfilling costs, and higher travel expenses are key margin headwinds.
Expects H2 margin to be weaker that H1 number.
Supply-side challenges and deal ramp-up costs can be offset by operating leverage from strong revenue growth.
Infosys is a high-quality large-cap stock with good client diversification and a strong customer base.
It will lead peers on revenue growth in FY22.
Strong deal wins highlight consistent market share gains.
With trends across the industry favouring large vendors such as Infosys, its valuation discount to Tata Consultancy Services Ltd. should tend towards the lower end of the historical range.
Phillip Capital
Maintains 'buy' rating, raises target price to Rs 2,150 from Rs 1,980 earlier, implying a potential upside of 26%.
Positive on the Infosys strong growth story, driven by robust demand environment for the sector because of compressed digital transformation.
Strong Q2 performance was significantly better than that of TCS.
Infosys set to report high-teen growth in FY22, after a strong performance in Covid impacted FY21.
That narrows the valuation gap with TCS.
Kotak Institutional Equities
Maintains 'buy' rating, raises fair value to Rs 2,000 from Rs 1,775, implying a potential upside of 17%.
Infosys reported excellent all-round growth, improvement in client metrics and stable margins. Guidance is conservative even after a material increase.
Expects large deal momentum in FY23, helped by vendor consolidation, core transformation programme and rebidding of deals from legacy players.
Infosys is well-equipped for industry-leading growth in the medium term. It will be at the forefront of core transformation deals, and managing digital journey of clients.
The growth leadership comes on the back of investments in multiple dimensions of business including digital competencies, large deal advisory channel, sales and marketing, localisation, digital capabilities and enhancing presence in BPO.
The outcomes of these investments are strong growth in digital, de-risked and localised delivery structure and deal momentum, driving a consistent and broad-based growth.
Infosys will outperform TCS on revenue growth for the third consecutive year.
Emkay
Maintains 'buy' rating, raises target price to Rs 1,910 from Rs 1,900, implying a potential upside of 11.7%.
Large deal intake was healthy in Q2FY22 (37% new), with 22 large deals signed during the quarter.
The deal pipeline remains healthy, with a good mix of new and renewal deals, offering good revenue visibility.
Infosys continued to gain market share and emerged as the preferred cloud and digital transformation partner for its clients as they accelerated their digital journeys.
The company retained its FY22 EBIT margin guidance of 22-24%, considering the impact of supply-side inflation, skill-based salary hikes, furloughs and likely normalisation of travel, facility and other related costs.
Revenue acceleration, improving business mix, employee pyramid and role ratio, pricing in digital projects, automation and other operating efficiencies would help negate these headwinds.
Motilal Oswal
Maintains 'buy' rating, raises target price to Rs 1,960, implying a potential upside of 15%.
Large deal wins were a tad soft. However, the management indicated good traction in medium- and small-sized deals, and reiterated that the pipeline remains strong on robust demand.
Sees a sharp increase in attrition (20.1% in 2QFY22, up 620 basis points QoQ) as a concern, especially as utilisation was at a record high of 89.2%, which is unsustainable.
Sees scope for a beat and a raise over the next two quarters as Infosys benefits from a better large-deal focus and demand tailwind.
Increased FY22E EPS estimate by 2% on stronger-than-expected performance in Q2. FY23 EPS estimate remains unchanged.
Sees Infosys as a key beneficiary of an acceleration in IT spends, given its capabilities around cloud and digital transformation.
Expects the company to deliver top quartile growth performance in FY22 on the back of its strong capabilities and ramp up of large deal wins in FY21.
Relative preference for Infosys over TCS premised on its headroom for increased growth potential, which was further reinforced by this result.
Dolat Capital
Maintains 'accumulate' rating, raises target price to Rs 1,840 from Rs 1,790 apiece, implying a potential upside of 8%.
Q2 was beat on all count, and management commentary also remained confident on demand and deal pipeline. However, none of the data leads to further momentum to what has already been modeled in.
Sharp jump in attrition at 20% and modest addition in new deal wins at $2.15 billion suggest some potential moderation in year-on-year growth trajectory hereon.
Expects sequential growth of 2.6% in dollar revenues, led by strong performance across verticals (deal traction is strong and pipeline remains healthy) led by client spends towards digital transformation. Operating margins expected to remain flat QoQ as a partial wage hike (senior employees) impact would be covered up by operating leverage.
Infosys and other tier 1 information technology companies would continue to deliver strong revenue momentum over next four to five quarters.
That would translate into double-digit revenue growth in FY22-FY24, and thus sustain current valuations.