Buy Infosys target of Rs 2004: Prabhudas Lilladher
Prabhudas Lilladher is bullish on Infosys has recommended buy rating on the stock with a target price of Rs 2004 in its research report October 14, 2021.
October 14, 2021 / 08:45 AM IST
Prabhudas Lilladher's research report on Infosys
Infy reported strong growth of 6.3% QoQ CC, 5.7% QoQ USD much above our estimates (Ple: 4.8%, Cons: 5.5%) led by strong broad-based demand across verticals and markets. Daimler deal contributed 1.5% to revenues. Infy’s revenue from digital business showed sustained strong growth (9.8% QoQ, 43% YoY USD) and now account to 56% vs 47.3% in 2Q21. Deal TCV of $2.15 Bn, was soft on -17% QoQ and -32% YoY basis. Net new deals were moderate at 37% of TCV, however, management mentioned demand environment is extremely strong. Deal pipeline is robust with good mix of small, mid-sized and large deals. We are not worried by weak TCV as we believe large deal momentum will be back in FY23E when supply side pressure eases out. Infy reported margin of 23.6%, -12bps QoQ much above our & cons estimates (Ple: 22.5%, Cons:22.5%). Margins were stable on QoQ basis despite wage hike for junior employees and supply side cost pressures led by operating leverage and cost efficiencies. LTM IT services attrition increased sharply to 20.1%, +620 bps QoQ. Infosys plans to contain attrition through selective skill-based and performance-based compensation hikes in 3Q. Total fresher hiring target for FY22 is also revised for second consecutive quarter to 45K from earlier 35K (25K previously). Management is confident of sustaining margins within guidance band of 22-24% despite supply side pressures.
We already baked in 18%/12.8% growth for FY22/23. Our EPS estimates increased marginally by ~1% for FY22/23/24E. We arrive at DCF based TP of INR 2004 (implied target multiple of 28x P/E on FY24 EPS). Infy is currently trading at 27.4X/23.8X earnings of INR 62.4/72 for FY22/23E respectively with revenue CAGR of 14.3% and EPS CAGR of 16.2% over FY21-24E.
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