Q4FY23 Review: Infosys: Revenue miss on discretionary pause; deals surge

17 Apr 2023 , 10:03 AM

Infosys (INFO) reported Q4FY23 revenue decline of 3.2% cc QoQ/+8.8% YoY, below estimates of IIFL Capital Services at 0.6%. EBIT margins were down 50 basis points QoQ at 21.0%, below the estimates of IIFL Capital Services, primarily due to lower revenues. INFO guided to FY24 revenue growth of 4-7% cc YoY, implying a CQGR of ~1-7-2.9%, and EBIT margin at 20-22%. Deal wins at US$2.1 billion (only 21% new) were also weak (3% TTM YoY). 

Analysts at IIFL Capital Services have cut their FY24-25 EPS estimates by 4-6% to factor in lower growth; and have also cut 12-month Target Price to Rs1,500, based on 20x 2YF EPS (from 24x). They believe that after four years of significant outperformance on growth, this quarter was a reflection of portfolio headwinds coupled with poor execution.

FY24 guidance is driven down due to poor exit from FY23. CQGR still indicates healthy growth in FY24, though a sharp drop in revenue trajectory in Q4 makes it challenging to believe that guidance can be topped in FY24. Analysts at IIFL Capital Services have forecast 9%/14% USD cc revenue/EPS CAGR over FY23-25. They expect the stock to bottom out post the result reaction, making it an attractive dividend yield play (~5%), trading at pre-COVID levels with valuation support. Hence, while they have maintained their Buy recommendation on Infosys, they expect its discount versus TCS to increase and have changed their large-cap preference for TCS over INFO now.