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Buy Infosys Ltd For Target Rs 2,026

Revenue and EBIT margin  above estimates

Our view

Reported strong financial performance with both revenue and EBIT margin above estimates. Deal booking remains strong and would support growth momentum. There are near term margin headwind as employee attrition has sharply picked up.  We expect it to report revenue CAGR of 14.9% with average EBIT margin of 24.7% over FY22‐ FY24. We maintain BUY Rating in the stock with revised target price of Rs 2026.

Result Highlights

* Reported revenue of Rs 468.7bn ( $6.3bn), ( up 3.2% QoQ  in INR terms; up 2.9% QoQ in USD terms) which was slightly below consensus estimate of 473

* Reported revenue of Rs 296 bn( up 6.1% QoQ in INR terms; up 5.7% in USD terms; The growth was broadbased across verticals with Digital services recording 43% YoY growth and now forms 56.1% of revenue. CC revenue growth was 6.3% QoQ.

* EBIT margin came above expectation and declined only 11 bps QoQ to 23.6, even after absorbing wage hike and higher attrition, led by cost optimisation.

* Demand environment remains robust as it recorded large deal signings of $2.15bn compared to $2.6bn in Q1FY22.

* Utilization (excluding trainees) increased by 70 bps QoQ to 89.2%. Attrition increased by 620 bps QoQ to 20.1% led by higher demand for talent in the industry.Net addition of 11,800 employees in the quarter. Has guided for around 45,000 hiring in FY22.

* Offshore effort mix increased by 50 bps QoQ to 76.4% as per industry trend.

Valuation

The stock trades at PER of 23.7x on FY24E EPS. Robust deal booking and growing share of digital revenue provides strong visibility about revenue and margin outlook. It is expected to meet  its FY22 revenue growth guidance of 16.5‐17.5% YoY in cc terms with EBIT margin band of 22‐24%. We rollover to FY24 estimates and value the stock at 15% discount to TCS, i.e at 28x on FY24 earnings, arriving at target price of Rs 2,026/share

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