Infosys Outperforms TCS in Q4, Revenue Guidance Beats Street Expectations; Should You Buy?

Infosys Shares: Infosys, the country’s second-largest IT services company, recorded lower-than-expected earnings growth in March 2022 quarter but the revenue growth guidance for the current financial year has exceeded analysts’ expectations. The Bengaluru-based IT major saw its revenue rise 23 per cent to Rs 32,276 crore in the recently concluded quarter, as against Rs 26,311 crore in the previous corresponding period.

However, Infosys’ March quarter result was below expectations even as its profit and revenue growth were better than that reported by its larger peer Tata Consultancy Services (TCS).

EBIT margin dipped 190 basis points (bps) quarter-on-quarter (QoQ) to 21.6 per cent due to lesser days, lower utilisation, and higher visa costs. The company has guided at a margin of 21-23 per cent for FY23 (100bp cut from its earlier guidance in FY22).

Salil Parekh, CEO and MD, said the broad-based performance was driven by deeply differentiated digital and Infosys Cobalt-led cloud capabilities, powered by ‘One Infosys’ approach. “We continue to gain market share as a result of sustained clients’ confidence in our ability to successfully navigate their digital journeys.”

The next-generation digital services and consulting firm reported deal wins with a total contract value (TCV) of $9.5 billion for the financial year 2021-22, and $2.3 billion for Q4FY22. The company added one client each in the $100 million+ bucket and $10 million+ category. Its active clients count at the end of March 2022 was 1,741, up from 1,738 clients as of December 2021.

Infosys share: Should You Buy, Hold or Sell?

IDBI Capital in its report said, “Infosys’ Q4FY22 financial performance was disappointing mainly due to delay in contract sales booking and lower large deals in the life-science vertical. However, Infosys has given robust guidance for FY23E of 13-15 per cent which indicates a healthy demand outlook. The absence of mega deal wins as seen in FY22E makes this guidance even more robust. We expect margins to improve in H2-FY23 and expect a further 60 bps improvement in FY24 to 22.6 per cent. Maintain BUY rating on the stock with revised target price of Rs 2,020 (28x FY24E EPS).

Brokerage firm Motilal Oswal said that strong headcount addition at 22,000, a robust demand environment, and a robust revenue guidance for FY23 points towards continued strong revenue growth for FY23. We factor in 16 per cent revenue CAGR over FY22-24. We factor in a margin of 22.4 per cent / 23 per cent in FY23/FY24. We have lowered our FY23/FY24 EPS estimate by 5 per cent on slower growth and margin pressure. See Infosys as a key beneficiary of an acceleration in IT spends, given its capabilities around Cloud and Digital transformation. We value the stock at 28x FY24E EPS and reiterate a Buy rating.

Foreign brokerage Morgan Stanley said, “F23 revenue growth guidance stronger-than-expected at 13-15 per cent YoY in constant currency (CC) terms versus our 12-14 per cent estimate. Margin guidance of 21-23 per cent was in-line with our estimate, but below the Street at 22-24 per cent. In a nutshell, the Q4-FY22 numbers were an all-around miss, but good F23 revenue growth guidance.”

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