Infosys share price shed 5 percent in the early trade on January 14, a day after the IT major company declared its December quarter numbers. The company delivered a strong beat on all parameters in the December quarter earnings, with upward revision in full-year constant currency revenue growth as well as margin guidance following a record deal wins.
Consolidated profit grew by 7.3 percent sequentially to Rs 5,197 crore, while its earnings before interest and tax (EBIT) increased 5.8 percent quarter-on-quarter to Rs 6,589 crore with margin expansion at 25.4 percent (against 25.3 percent QoQ) for the December quarter.
"We delivered the highest Q3 sequential growth of 5.3 percent in eight years in constant currency. On a year-on-year basis, revenues grew by 6.6 percent, digital revenues grew by 31.3 percent and overall digital revenue crossed more than half of total revenues. Large deal total contract value (TCV) was at all-time high of $7.13 billion," said Infosys in its BSE filing.
Also Read - Infosys beats estimates with Q3 profit growth at 7.3%; raises FY21 revenue, EBIT margin guidance
Here is what brokerages have to say on the stock and the company after the December quarter numbers:
Given strong Q3 performance, record TCV signings, guidance upgrade and a confident stance, Dolat Capital upgraded its top-line estimates by 1.5 percent CAGR over FY21-FY23. Also given robust growth, strong discretionary cut in cost and no-near term visibility on workforce optimisation (WFO), the broking house scaled up OPM estimates by 140bps-85bps for FY22/FY23E.
It believes the company and other Tier-I IT companies would continue to deliver strong revenue momentum over the next five to six quarters (translating to double-digit revenue growth in FY22E) and thus would sustain current valuations of 25x-30x, which implies over 2.5x on PEG basis.
It currently values the company at 27x (from 24times) on FY23E earnings of Rs 55.7 (earlier Rs 53) with target price of Rs 1,500 per share (from Rs 1,270) and retains rating to "accumulate".
Infosys posted a strong margin of 25.4 percent (Ple: 24.9 percent, Cons: 25.1 percent). Improving onsite pyramid, offshore and nearshore mix, utilization and automation are strong strategic levers for margin expansion.
The company reported large deals TCV at all-time high of $7.13 billion against $3.145 billion last quarter, with 73 percent being net new. Infosys is strongly positioned with nine months’ deal TCV at $12 billion with $8 billion net new deals. It values company at 27x to arrive at a changed target price of Rs 1,611 (earlier Rs 1,538) on FY23 EPS of Rs 59.7. Infosys is trading at 25.5X/23.2X FY22/23 earnings of Rs 54.5/59.7 on FY22/23E respectively. Reiterates "buy".
It expects Infosys to be a key beneficiary of multi-year growth in digital technology, considering its digital prowess and its ability to provide an end-to-end solution. This, coupled with an increase in outsourcing in the US and Europe, vendor consolidation opportunities, captive carve-outs and cost takeout deals would further boost revenues.
In addition, healthy deal wins are expected to help the company make a steady improvement in financials in coming quarters. Infosys has consistently outperformed TCS over the past few quarters and also narrowed the margin gap between the two companies. As a result, it expects the PE multiple discount between Infosys and TCS to narrow. Hence, we maintain our buy rating on the stock with a revised target price of Rs 1,610 (25x P/E on FY23E EPS) (previous target price was Rs 1450).
Performance during the quarter is indicative of Infosys' technical capabilities and strong sales team presence in the market. Growth over the near term would be driven by $ 12 billion deal wins (net new wins of $ 8 billion).
For 9MFY21, it delivered strong margin. Some of the margin tailwinds are not sustainable and their benefits would partially wane out as travel comes back and attrition and offshore ratio normalise. The company should be a key beneficiary of a recovery in IT spends in FY22.
As Infosys outperformed TCS in 9MFY21 and is on its way for industry leading performance in FY21 (among Tier-I players), the valuation divergence is expected to narrow. The stock is trading at 21x FY23E EPS. The brokerage values the stock at 24x FY23E EPS, implying a target price of Rs 1,600.
The Q3FY21 results indicate improved confidence in margin defence. The Q3 revenue and deal-win momentum would help the company exit FY21 at the higher end of the guided range. The Q3 momentum would help Infosys provide double-digit compound revenue growth for FY22-23.
The ramp-up in Daimler deal could add an incremental 3 percent to FY22 growth and FY22/23 EBIT margin is now expected at the upper end of the 23-24 percent band.
The brokerage reiterated "buy" call on the stock and raised target to Rs 1,620 from Rs 1,480, CNBC-TV18 reported.
The company delivered strong results with 5.3 percent revenue growth in constant currency. The management remains confident of strength in business momentum and market share gains.
Given contribution from digital, the company remains a major beneficiary of the tech upcycle. The brokerage maintained a "buy" call and raised target to Rs 2,124 from Rs 1,850, reported CNBC-TV18.
The robust CC revenue growth of 5.3 percent QoQ was well ahead of estimates of 2.7 percent. The research house kept an "outperform" rating and raised the target to Rs 1,810 from Rs 1,450. Also, raised FY21 earnings by 3 percent and FY22-23e earnings by 6-7 percent. Slower-than-expected growth and a sharp rupee appreciation were identified as key risks, CNBC-TV18 said.
Jefferies maintained a "buy" call on the stock and raised the target price to Rs 1,620. Q3 results beat estimates, with revenue up 5.3 percent QoQ being a key positive surprise. The deal total contract value at $ 7.1 billion was the highest ever, with 73 percent net new deals. The margins disappointed in the context of high growth in Q3. It raised FY21-23 estimates by 1-4 percent, reported CNBC-TV18.
The research firm remains "overweight" on the stock, with the target raised to Rs 1,700 per share. It raised FY21-F23 EPS estimates by 4-7 period, reported CNBC-TV18.
At 0918 hours, Infosys was quoting at Rs 1,349.50, down Rs 37.65, or 2.71 percent on the BSE.
The share touched its 52-week high Rs 1,392.70 and 52-week low Rs 511.10 on January 13, 2021 and March 19, 2020, respectively.
It is trading 3.1 percent below its 52-week high and 164.04 percent above its 52-week low.