Infosys Shares Surge As Analysts Retain Bullish Rating On Large Deal Wins

Infosys Ltd. shares surged the most since 2013 as most brokerages hiked their target prices for the IT firm after its margin improved, aided by cost cuts and large deal wins in the first full quarter affected by the coronavirus pandemic.

The Bengaluru-based company’s margin expanded 150 basis points over the preceding three months to 22.7% in the April-June period, according to an exchange filing. Its profit, however, fell 1.5% sequentially to Rs 4,272 crore.

Infosys also provided guidance for 2020-21—a practice it shunned in the previous quarter due to disruptions from Covid-19. It expects a constant currency growth in revenue of 0-2% in the financial year ending March 2021 and sees margin between 21 and 23%.

That may have prompted analysts to remain bullish on Infosys. While CLSA expects the company’s margin to remain broadly stable during the fiscal, JPMorgan upgraded its estimates by 60-120 basis points for FY21-23.

Of the 48 analysts tracking the stock, 38 have a ‘buy’ rating, eight suggest a ‘hold’ and the rest has a ‘sell’ recommendation. The average of Bloomberg consensus 12-month target price implies an upside of 1.2%. The stock jumped as much as 14% on Thursday.

Infosys shares traded at an all-time high of Rs 952 apiece at 10:26 a.m. on Thursday, 14.57% higher than the previous day’s close. The Nifty IT Index traded 6.25% higher at the same time.

Here’s what the analysts have to say about Infosys’ first-quarter results:

Macquarie

• Maintains ‘outperform’ rating and hikes price target to Rs 910 apiece from Rs 751

• Large deal wins, stable EBIT margin and strong revenue growth

• Higher revenue growth momentum will translate into an estimated 11% EPS CAGR over FY20-22

• Large deal wins to translate into faster than industry revenue growth rate in FY21-22E

• Lower selling, general and administrative expenses and travel costs to act as key margin levers

• Expects revenue growth rates of 1.6% and 12% year-on-year in U.S. dollar terms in FY21 and FY22

• Increases FY21-22 EPS estimate by 8-12% on higher revenue growth and margin assumptions

• Increases price-to-earnings multiple to 19 times from 17

CLSA

• Maintains ‘buy’ rating and raises price target to Rs 1,000 apiece from Rs 860

• First-quarter results well above expectations

• Healthy deal wins, stable cash management and an optimistic outlook

• Expects margins to be broadly stable in FY21

• Raises FY21/FY22 EPS estimates by 9%

JPMorgan

• Maintains ‘overweight’ rating; raises price target to Rs 1,000 apiece from Rs 900

• First quarter beat expectations on all counts

• Has outpaced TCS over the last four quarters

• Tangible improvement in client relevance and superior performance justifies a re-rating

• Upgrades FY21-23 earnings estimates by 7-8%

• Upgrades FY21-23 margin estimates by 60-120 basis points

• Remains the top pick in the sector

Motilal Oswal

• Retains ‘buy’ with a target price of Rs 1,050 apiece

• Margin performance reflects resilience in navigating Covid-19

• Supply-side challenges were managed better than even TCS

• Reinstatement of guidance is a morale booster

• There is headroom for margins expansion