Q3FY23 Review: Infosys: Assuring quarter with an eye on macro

13 Jan 2023 , 10:21 AM

Recommendation: Buy

Target price: Rs1,800

Infosys reported Q3FY23 constant currency revenue growth of 2.4% sequentially and 13.7% over the year-ago quarter. This is above IIFL Capital Services’ estimates of 1.1%. The company’s EBIT margins were flat at 21.5% — tad below IIFL Capital Services’ — primarily due to higher pass through revenues. 

Infosys raised FY23 constant currency revenue-growth guidance to 16-16.5% (from 15-16%), and maintained EBIT margin guidance at 21-22%. Large deal wins, at US$3.3 bllion (36% new), were at an 8-quarter high (+20% sequentially) and management indicated the pipeline remains fairly strong. 

Analysts at IIFL Capital Services believe healthy deal wins and hiring underscore Infosys’ ability to gain market share in the current environment, while strong execution on margins would ensure sector-leading EPS growth among large caps. They have maintained their view that Infosys has levers, which should ensure margins in FY24 would be higher YoY as investments fructify. 

Analysts at IIFL Capital Services have fine-tuned their EPS estimates and have maintained 12-month Target Price of Rs1,800, based on 24x 2-year forward estimated EPS. They forecast 11%/15% growth in USD revenue/EPS CAGR over FY23-25. They believe Infosys will continue delivering industry-leading growth among large caps, which warrants convergence of its valuation gap with TCS. INR volatility and attrition are the key downside risks to IIFL Capital Services’ estimates.

Infosys remains the preferred large-cap pick of IIFL Capital Services. Maintain Buy.