CLSA on Friday said Infosys’ September quarter results, like peers, underline the resilience of the service portfolio and adeptness of the cost structure of Indian IT services companies.
While suggesting that the IT major’s September quarter revenue growth was a slightly below its estimate, CLSA said, it was more than offset with a larger margin beat, strong deal wins and an unexpected calibration of FY23 revenue growth and margin guidance.
The foreign brokerage has raised its FY23 and FY24 EPS estimate for Infosys by 1 per cent each, building in a
likely buyback by March quarter.
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“While the spectre of macro risk remains an overhang, we believe a likely pause in downgrades & the proposed buyback could revive investor interest. We maintain our buy rating & raise our price target from Rs 1,750 to Rs 1,800,” it said while suggesting that the stock is its preferred sector pick.
On Friday, the scrip was trading 4.2 per cent higher at Rs 1,479.40 on BSE. At this price, CLSA’s target suggests a 22 per cent potential upside.
The stock trades at a 22 times 12-month forward EPS and implies a 1.4 times PE (adjusted for
free cash flow yield). This is against a 10-year band of 0.5-1.6 times. CLSA expects downside support for the stock from the proposed $1.1 billion buyback.
Infosys management highlighted its deal pipeline is bigger than the past few quarters and is populated by larger costtakeout deals. “If converted, this could limit the impact of softness in discretionary spend that is now spreading across verticals. Our FY23/FY24 CC revenue growth forecasts are broadly unchanged,” CLSA said.
The foreign brokerage said a sharp rupee depreciation towards quarter-end helped Infosys Ebit margin expand 70 basis points. It suspects the management may prefer reinvesting incremental currency gains than letting it flow into reported margins.
Besides, CLSA said attrition continues to moderate, indicating growing headroom in execution costs—a 7-year high trainee bench is an additional lever.
“We retain our above consensus margin forecasts, with our FY23/FY24 EPS higher by 1.4 per cent/1.2 per cent also on the reduced share-count,” it said.
