The June quarter earnings of IT player Infosys have fetched mixed reviews from brokerage firms even as most of them cut the earnings per share estimates of the stock and raised concern over the possibility of revenue and margin pressure going ahead.
As Mint reported earlier, Infosys' net profit rose 3.2% to ₹5,360 crore for the quarter ended June from ₹5,195 crore in the year-ago period, missing the consensus Bloomberg estimate of ₹5,645 crore.
June quarter revenue rose 23.6% from a year ago to ₹34,470 crore on broad-based growth across business segments, service lines, and markets. Analysts expected Infosys to report ₹33,933 crore in revenue.
The company added 21,171 employees in the June quarter, taking the total headcount to 335,186 as of 30 June.
Infosys said it expects revenue to grow 14-16% in constant currency this fiscal, faster than the 13-15% pace it predicted about three months ago. It retained its operating margin forecast at 21-23% for the financial year even as the management expects it to be at the lower end of the range.
Brokerages mixed, cut EPS estimates
Brokerage firm Nirmal Bang Equities has maintained a 'sell' call on the stock of Infosys with a target price of ₹1,142 while it cut its earnings per share (EPS) numbers for FY23 and FY24 by 5% and 3% respectively.
"This downgrade cycle, in our view, will likely continue for FY24, as revenue growth will likely come in lower than current market expectations due to tighter IT spending by customers on a significantly weaker corporate profit picture due to a likely mild recession in 2023 in the US (our base case)," said Nirmal Bang.
"We continue to be concerned about the quality of the financials with unbilled revenue up 60% YoY while revenue was up about 24% in rupee terms. We had downgraded our view on the IT sector, implying a reversal in the post-Covid EPS upgrade cycle. Q1FY23 is another confirmation data point. Post Q1FY23, we maintain our ‘sell’ rating on Infosys with a lowered target price at ₹1,142, valuing it at 12-month forward PE of 17.9 times on FY24E EPS (10% discount to TCS target PE multiple)," the brokerage firm added.
ICICI Securities has a 'hold' call on the stock with a target price of ₹1,434 as it believes headwinds from an increase in travel costs, wage hikes for senior employees in Q2FY23 and supply-side cost pressures will weigh on margins while tailwinds from pyramid optimisation, reducing subcontract costs, and pricing power will be backend.
"Our FY23 EPS estimate decreased by 4% due to a cut in margin estimates while FY24EEPS estimate remains largely intact. We believe there will be at least 3-5% of EPS cut in consensus estimates due to reduction in margin forecasts for FY23 and growth forecasts for FY24," ICICI Securities said.
"We do believe Infosys is well positioned to gain market share and is suitably equipped for industry-leading growth. However, elevated margin pressures along with slowing TCV momentum in tandem with the weak macro-environment lead us to retain our hold rating," the brokerage firm added.
JM Financial has a 'buy' call on the stock but cut the target price to ₹1,720 from ₹1,800.
The brokerage firm said Infosys’s Q1FY23 earnings suggest strong revenue growth with the company leading amongst the Tier I tech firms on growth though margins disappointed relative to expectations with a 150 bps sequential drop.
"The company continues to suggest a strong pipeline (notwithstanding the macro worsening) and expects margins to improve through the course of FY23. That said, we cut FY22-25E by 2.4-4.7% driven by lower margins even as we appreciate the continuing trend of market share gains/growth leadership," said JM Financial.
The stock of Infosys closed 0.23% lower at ₹1,502.85 on BSE on July 25.
Disclaimer: The views and recommendations made above are those of individual analysts or broking firms and not of MintGenie.
