Buy Infosys; target of Rs 1640: Emkay Global Financial

Emkay Global Financial's report on Infosys

Infosys reported mixed performance in Q1, with revenue beating our estimates and margin missing our expectations. Revenue grew 3.8% QoQ to USD4.44bn (5.5% CC), driven by broad-based demand. EBITM declined 150bps to 20.1% due to increased cost pressures. The company raised its FY23 revenue growth guidance to 14-16% CC (13-15% earlier), implying a 1.4-2.6% CQGR over Q2-Q4, on the back of strong Q1, broad-based demand, solid deal intake and pipeline. It has retained EBITM guidance at 21-23%, but expects it to be at the lower end of guided range, considering Q1 performance and cost woes. Though large deal intake has moderated, it was healthy at USD1.7bn in Q1. As per management, large deal pipeline expanded in the last 3-6 months. Healthy large deal wins, progress on client mining and robust deal pipeline give good growth visibility for FY23.

Outlook

We cut FY23/FY24/FY25E EPS by 1.9%/0.1%/0.1%, factoring in the Q1 performance. The margin miss should lead to our/consensus earnings downgrades, though revenue beat estimates. We maintain Buy with a TP of Rs1,640 (23x Jun’24E EPS), considering continued market share gains, expected margin recovery, and steady cash generation.