Buy Infosys; target of Rs 1600: Motilal Oswal

Motilal Oswal's research report on Infosys

Infosys (INFO) reported 4QFY21 constant currency (CC) USD revenue growth of 2% QoQ, below our estimate of 3.1%, as a higher offshore revenue share (100bp) partially offset the strong volume growth of 4.6% QoQ. 4QFY21 EBIT margin declined 90bp QoQ, marginally below our estimate, due to a 130bp wage hike impact and higher subcontracting expenses (+50bp QoQ, highest in the last five years), despite more offshoring and cost optimization. In FY21, revenue (USD)/EBIT/PAT grew. 6.1%/30.7%/17.5%. The management guided at FY22 USD revenue growth/EBIT margin of 12-14% CC YoY/22-24%. It also characterized the current demand environment to be one of the strongest for a while. We expect INFO to deliver another year of ongoing guidance raise as the current one does not fully factor in strong technology demand and execution of its record high FY21 deal wins (large deal TCV of USD14.1b, 1x book-to-bill ratio). A strong topline growth (we estimate +15% YoY CC) should allow INFO to keep EBIT margin impact (due to 2QFY22 wage hike and large deal ramp up) within a narrow band at the upper end of its guidance.Outlook

As INFO has outperformed TCS in FY21, we expect the valuation divergence to narrow. Based our revised estimates, the stock is currently trading at 22x FY23E EPS. We value the stock at 25x FY23E EPS, implying a target price of INR1,600.

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