Sharekhan Bets On This Large-Cap IT Stock For Gains Nearly 21%, Expects 12.7% USD Revenue Growth

A report on Infosys Ltd, published by Sharekhan, a leading brokerage firm, on June 22, 2022, maintains a buy rating on the company for a target price of Rs 1,730 per share. According to the brokerage's interaction with the Infosys management, the demand environment continues to remain strong as the company does not see any weakness in IT spending or delay in decision-making from its customers despite geopolitical tensions and an inflationary environment. Further, the company's interaction with its key customers makes it more confident on achieving its FY2023 revenue guidance as its customers have no plans for the reduction of any discretionary spends.

Stock Outlook

On Friday, the stock of Infosys Ltd. closed at Rs. 1,441,10 per share, the Current Market Price (CMP). It was opened at Rs 1,458 per share. The brokerage has set a target price for the company of Rs. 1,730 per share.

The stock on 17 June 2022, hit the 52 week low level at Rs 1367.15 per share. The stock's CMP is about Rs 73.95 above its 52-week lows. The 52-week high of the stock record on 17 January 2022 is 1,953.90 per share.

Based on Infosys Ltd's CMP, and the estimated target price by Sharekhan, the stock has the potential to gain almost 21 per cent.

The stock has given good returns on long-term investment, whereas, on short-term investment such as less than a year it has given negative returns. Despite negative returns in the last 1 year, the stock has gained 3.88 per cent in the last 1 week.

The share price of Infosys in the last 1 year fell nearly 7.57 per cent, and 23.62 per cent in 3 months, respectively. On the other hand, it performed well in 3 years and gave 93.31 per cent and 205.56 per cent in 5 years, respectively.

Cloud acts as a force multiplier

Spends on cloud-transformation initiatives continue to catalyse digital transformation, given its ability to enhance business resilience and agility and increase development speed at a scale. The company's Cobalt cloud capabilities are market‑leading across the cloud computing services model. Further, it continues to build its data, analytics, AI, cybersecurity, and IoT expertise and invest in strong partnerships with cloud hyperscalers such as AWS, GCP and Microsoft Azure, and SaaS providers. The company's differentiated cloud capabilities helped it to outpace the market growth rate in FY2022 and is well placed to sustain the strong growth momentum in the coming years.

H1 likely to be stronger

The company remains confident of delivering strong revenue growth of 13-15% in constant currency in FY2023E with front-ended revenue growth. Hence, H1FY2023 is expected to be stronger in terms of growth compared to H2FY2023. Infosys can benefit from the cost takeout initiatives of customers in a deteriorating macro environment.

Margins to stay stressed in H1 but likely to improve in H2

Margins are expected to remain under pressure in 1HFY2023 owing to higher-than-usual wage revision (effective April), supply-side issues, increasing travel and facility expenses, and investments in building capabilities. Management highlighted that wage revision would be in a staggered manner, with a significant portion of impact in Q1FY2023. Though the strong addition of freshers during FY2022 would reduce subcontractor costs, it will be back-ended. Margins are likely to improve in 2HFY2023 as headwinds are front-loaded, led by rationalisation of sub-contractor costs, pyramid rationalisation, and better pricing. The company expects gradual improvement of pricing in FY2023 as it is invoking cost of living adjustments (COLA) and negotiating higher pricing during renewals.

Sharekhan Suggests Buy with a Price Target of Rs. 1,730 per share

The brokerage said, "We have reduced our earnings estimates for FY23- 25E by 1-3% to factor in moderation in USD revenue growth owing to adverse currency movements and anticipation of moderation in technology spending due to increasing macro concerns. However, we believe Infosys is well equipped to deliver industry-leading organic growth among large peers in FY2023E/FY2024E, given proven capabilities to execute largescale complex transformation programs. Infosys is expected to report USD revenue and earnings growth of 12.7% and 12.3%, respectively, over FY2022-FY2024E. At the CMP, the stock trades at 25x/22x its FY2023E/FY2024E earnings."

They added, "We have lowered our target multiples considering higher interest rates and possibilities of US recession. We continue to like Infosys because of its robust capabilities, a strong capital-allocation policy, stability of the current leadership, and a strong portfolio of business, which are aligned in growth areas." Hence, we maintain our Buy rating on the stock with a revised price target of Rs. 1,730."

About - Infosys Ltd.

Infosys Limited is a global leader in next-generation digital services and consulting. The company enable clients in more than 50 countries to navigate their digital transformation. Infosys is a provider of technology, consulting, and next-generation digital services, enabling clients to execute strategies for their digital transformation. The company help their clients in the digitization of processes, migration to cloud-based technologies, workplace transformation, business model transformation, enhanced cybersecurity controls, and cost structure optimization in IT. It was incorporated in Pune, their head office is in Karnataka.

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.