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Infosys Stock Outlook: Brokerage’s confidence increased due to strong growth guidance, buy rating given in the stock, check target

Infosys management has given strong revenue growth guidance and it is expected to strengthen further in the coming quarters.

Infosys Q4FY22 Review: Infosys, the country’s second largest software services company, on Wednesday presented its results for the fourth quarter of FY 2022, which have been weaker than expected. The company’s conso net profit stood at Rs 5686 crore. Brokerage house Motilal Oswal says that the company had a growth of 1.2% QoQ CC in 4QFY22, which is weaker than the estimate of 2.8 percent. Although the demand environment is strong and the company will also get the benefit of increasing IT spending. The revenue growth guidance has been given by the management and it is expected to strengthen further in the coming quarters. In view of this, it has been advised to buy in the stock and it is expected that its price will reach Rs 2000 in the coming days.

Benefits of increasing IT spending

Brokerage house Motilal Oswal says that earnings of INFOSYS have been weak in 4QFY22. Margins also saw a decline. Growth remained muted in 4QFY22, but demand remains intact and order book remains strong. The management’s growth guidance for FY23 and high headcount addition also suggest that the demand environment is strong. The brokerage says that we expect INFOSYS to have better margins on the higher side of its guidance band with strong growth and reduced dependence on subcontractors. The brokerage says that the company will get the benefit of increasing IT spending. The stock is currently trading at 25x FY24 EPS. Further it can show a price of Rs 2000.

Strong demand environment

Brokerage says that INFOSYS has shown weak growth of 1.2% QoQ CC in 4QFY22. This estimate is less than 2.8 percent. The impact of client provisions, Kovid 19 epidemic and seasonality has been seen in the results. However, the management has indicated good traction in its large deal pipeline and reiterated that demand remains strong.

Strong revenue growth guidance

The company’s EBIT margin declined by 190bp QoQ to 21.6 percent, which is weaker than the 23 percent estimate. The management has kept margin guidance at 21-23 per cent for FY23, which is 100bps lower than the earlier guidance. On the other hand, the guidance for revenue growth has been given at 13-15 per cent. It is expected that it will increase in the next quarters.

5% cut in EPS estimate

The company added 22,000 new employees in the fourth quarter, demand remains strong and the revenue growth guidance for FY23 is also confident. The brokerage expects the revenue CAGR to be 16 per cent for FY22-24, while the margin for FY23/FY24 could be 22.4%/23%. The brokerage has cut its EPS estimate for FY23/FY24 by 5 per cent due to slow growth and pressure on margins.

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