Buy Infosys; target of Rs 1750: Motilal Oswal

Motilal Oswal's research report on Infosys

INFO reported strong 3QFY24 revenue of USD4.66b, down 1.0% QoQ in CC terms, better than our estimated decline of 1.7% QoQ CC. The large deal TCV momentum remained intact at USD3.2b (down 3% YoY, net new at 71%). The management sees strong traction in the large deal pipeline, despite an adverse demand environment. Weakness was visible in parts of Financial, Comm, Retail and Hi-Tech, partially compensated by better demand in Manufacturing, ENU and Life Sciences. The company narrowed its FY24 revenue growth guidance band to 1.5%-2.0% YoY CC from 1.0%-2.5% YoY CC earlier, effectively keeping the mid-point unchanged. EBIT margin declined 70bp QoQ to 20.5%, marginally ahead of our estimate. Profitability was aided by a lower-than-expected wage hike impact of 70bp, partially due to another reduction in workforce (-6.1k, down 190bp QoQ). This was further helped by continued moderation in attrition (12.9% in 3Q) and improved utilization at 82.7%. We expect the company to deliver a stable margin in Q4, resulting in 20.8% EBIT margin in FY24, near the midpoint of its 20%-22% EBIT margin guidance.

Outlook

Despite near-term weakness, we expect INFO to be a key beneficiary of the acceleration in IT spending in the medium term. Based on our revised estimates, the stock is currently trading at 19x FY26E EPS. We value the stock at 22x FY26E EPS, implying a TP of INR1,750.

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