scorecardresearchInfosys sheds 9% post results; CLSA says 'buy'; Ambit disagrees

Infosys sheds 9% post results; CLSA says 'buy'; Ambit disagrees

Updated: 18 Apr 2022, 10:41 AM IST
Infosys falls 9% on weak March quarter result, let's take a look at what brokerages say about the IT major 
The stock fell as much as 8.9 percent in intra-day deals to the day's low of  <span class='webrupee'>₹</span>1,592.

The stock fell as much as 8.9 percent in intra-day deals to the day's low of 1,592.

Shares of Infosys shed 9 percent on Monday after the IT major reported weak results for the March quarter of FY22 (Q4FY22). The firm posted a 12 percent year-on-year (YoY) growth in net profit at 5,686 crore against 5,076 crore in the same quarter last year. The revenue of Infosys increased by 22.70 percent YoY to 32,276 crore.

Meanwhile, on a QoQ basis, its top line grew 1.3 percent while net profit fell 1.3 percent. It gave guidance for revenue growth of 13-15 percent in constant currency and an operating margin of 21-23 percent for FY23.

The stock fell as much as 8.9 percent in intra-day deals to the day's low of 1,592. The stock has risen 29 percent in the last 1 year but is down 14 percent in 2022 YTD.


Infosys Stock Price Trend

Most brokerages also had a cautious stance on Infosys post its earnings. According to domestic brokerage Ambit, Infosys disappointed on growth, margins and margin guidance.

"Consensus estimates are already above FY23E growth guidance with upsides less likely. The result internals was weak with BFSI, Retail, Healthcare, and US being flat. Also, overall/new large deal wins down were down 33 percent/60 percent YoY," noted the brokerage.

Ambit believes client deferral, utilizations and visa costs will likely reverse in FY23E, but weak 4Q exit and impending pressures (wages, onsite shift, travel/facility cost reversals) will drive a 120-140 bps cut in FY23/24E EBIT margin.

Also, constant currency revenue growth estimates are largely unchanged but EPS is cut by 6 percent, it added. The brokerage has a 'sell' call on the stock with a target price at 1,725.

Meanwhile, global brokerage CLSA remains bullish on the IT major. It has given the firm a 'buy' call with a target price of 2,040. It believes the weak Q4 is 'a blip in time'.

According to CLSA, Infosys’ dream run took a pause in Q4FY22 as a client-specific situation affected the revenue momentum, and thereby margins. While demand tailwinds should bring the revenue growth back on track soon; 13-15 percent constant currency (CC) YoY revenue growth guidance for FY23 was ahead of expectations, it added.

Infosys’ position as the best scale services play on digital adoption remains intact given its best-among-peers organic revenue growth momentum, stated CLSA. However, it cut its FY23/FY24 EPS forecasts by 5 percent/4 percent, even though could dampen investor sentiment in the near term. It noted that Infosys' margin is posing a challenge.

"Tailwinds are likely an H2FY23 play while headwinds a more near-term; low FY22 exit margin is an additional challenge," said CLSA.

For Ambit, both Infosys and TCS remain 'SELL', given its view of likely growth normalization to pre-Covid rates by FY24E and margin pressures

Given better 4Q results, near-term outperformance of TCS is likely.

However, post likely result-led correction, preference for Infosys over TCS stays, Ambit added. This is as Infosys growth at 21 percent YoY is higher than TCS at 14 percent, QoQ growth has been better in 9 of 12 quarters and outperformance is broad-based over the last 3 years.

Also, TCS has already outperformed Infosys by 5 percent YTD and Infosys trades at a near double-digit discount on FY24E P/E. Historically, in periods of Infosys converging with TCS growth valuation gaps have closed, noted Ambit.

First Published: 18 Apr 2022, 10:27 AM IST