Buy Infosys Ltd For Target Rs.1,986 - Religare Broking
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Steady blue-chip to invest
Company Background: Infosys has four decades of experience and is a leading provider of technology, services and next-generation digital services and consulting. It has clients in 54 countries to create and execute strategies for their digital transformation.
New strategies in One Infosys model will drive growth: For the next 3-5 years, management has planned new strategies such as to keep a strong focus on cloud and expand in digital, work towards advance automation and modernization, start with next generation seeding and lastly focus on employee’s welfare. Thus, all these factors will support long term growth.
Digital business to continue drive growth: with strong demand across industry, large deal orders in pipeline and innovation of products, we expect strong momentum to continue from the digital & cloud space. In addition, the company is strengthening their capabilities in cloud and digital by ways of automation, data analytics, AI, digital experience and cyber security.
Deal & Order pipeline: High demand, large opportunities and strong orders for digital transformation from sectors such as financials services, retail, communication, manufacturing and energy & utilities will continue to aid growth.
Attrition level: Attrition level for the company has been on the higher side i.e. more than 20% from last four quarters due to high demand for talent in the industry. Going ahead, Infosys will continue to invest behind talent by training and re-skilling them but at the same time keep a check on attrition level as well.
Management guidance: Management had earlier foreseen 13-15% constant currency (CC) growth in revenue for FY23, but after strong top-line growth and better order pipeline in Q1FY23 as well as healthy pickup in digital and cloud services they increased their CC revenue guidance to 14%-16% for FY23. Besides, they retained margin guidance at 21%-23% for FY23.
Valuation: From a long term perspective we remain positive on the stock and have estimated revenue/EBIT growth of 17.7%/17.8% over FY22-24E. We have initiated coverage on Infosys with a Buy rating and a target price of Rs 1986, giving a multiple of 27x FY24E EPS
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