Buy Infosys; target of Rs 1611: Prabhudas Lilladher

Prabhudas Lilladher's research report on Infosys

Infy reported phenomenal revenue growth of +5.3% QoQ CC, beating our expectations by 2.4%. Growth beat was driven by revenue gains by strong deal TCV of 1HFY21 and earlier quarters. Digital revenues grew by 31.3% YoY CC and contributing to 50.1% to total revenues (vs 47.3% in 2Q21 and 44.5% in 1Q21). Revenue growth was broad based led by 9.8% QoQ USD rise in BFSI (led by ramp up of Vanguard deal) 10.8% QoQ USD rise in Life Sciences and 8.5% QoQ rise in Manufacturing. Infy posted a strong margin of 25.4% (Ple: 24.9%, Cons:25.1%). Improving onsite pyramid, offshore and nearshore mix, utilization and automation are strong strategic levers for margin expansion. Infy reported large deal TCV at all-time high of USD7.13bn (vs USD3.145bn last quarter) with 73% being net new. Infosys is strongly positioned with nine months’ deal TCV at USD12bn with USD8Bn net new deals. Infy’s strength in Cobalt solution to implement flexible, scalable and secure hybrid cloud model helped them win this highly competitive Daimler deal.

Outlook

We value Infy at 27x to arrive at a changed target price of INR 1611 (earlier: INR1538) on FY23 EPS of Rs. 59.7. Infy is currently trading at 25.5X/23.2X FY22/23 earnings of INR 54.5/59.7 on FY22/23E respectively. Reiterate BUY.