Buy Infosys; target of Rs 1620: Emkay Global Financial

Emkay Global Financial's research report on Infosys

Infosys reported disappointing operating performance in Q4. Unplanned ramp down of projects, delay in decision-making and some one-off revenue impacts, including a few clientspecific project cancellations, hit revenue growth in Q4, leading to the revenue-guidance miss. Mgmt highlighted weakness in parts of BFSI (mortgage, asset management, and investment banking), telecom, retail, and hi-tech which subdued growth. Among geographies, USA is more impacted than Europe. Infosys has guided for 4-7% YoY CC revenue growth for FY24, implying 1.7-2.9% CQGR over the next four quarters. After missing revenue growth guidance for FY23, Infosys is likely to guide conservatively for FY24, given increased caution in spending by clients and prevailing macro uncertainties; but the asking rate at the upper-end appears to be demanding and may require support of some mega-deal closures during FY24. Mgmt has guided for 20-22% EBITM for FY24 which is 100bps lower than the guided margin range at beginning-FY23. Despite near-term challenges posed by the tough macro environment, we believe Infosys is well positioned to capture the growth opportunities across digital transformation, cost efficiency and consolidation-led deals over the medium term.

Outlook

We cut our EPS by 4.4-6.3% for FY24E/25E, factoring-in the disappointing Q4. We maintain BUY on the stock, with revised TP of Rs1,620/share (earlier, Rs1,700) at 22x Mar-25E EPS.