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Revenue guidance increases further…

About the stock: Infosys Ltd (Infy) is one of the leading IT players catering to BFSI, retail, communication, manufacturing & hi tech verticals.

* The company generates >56% of revenues from digital technologies

* Dividend payout (>80%), margins (>20%) and RoCE (>31%) key positives

Q2FY22 Results: Infosys reported robust Q2FY21 results in revenue terms

* Digital revenues increased 42.4% YoY. It now contributes 56.1% of revenues

* Margins were resilient at 23.6% despite salary hikes

* Revised revenue guidance upwards from 14-16% earlier to 16.5-17.5% for FY22E and maintained margin guidance at 22-24% for FY22E

What should investors do? Infy’s share price has grown by ~4x over the past five years (from ~| 445 in October 2016 to ~| 1,726 levels in October 2021).

* We continue to remain positive and retain our BUY rating on the stock

Target Price and Valuation: We value Infosys at | 2,060 i.e. 32x P/E on FY23E EPS

Key triggers for future price performance:

* Infy is key beneficiary of multi-year growth (15-20%) in digital technologies

* Increase in outsourcing in Europe, vendor consolidation and large deal pipeline other key growth drivers

* Infosys to register industry leading growth in revenues (CAGR of 16% in FY21-23E)

* Healthy cash generation, robust dividend distribution & buyback

Alternate Stock Idea: Apart from Infosys, in our IT coverage we also like TCS.

* Strong organic growth, consistent financials, industry leading margins and healthy capital allocation policy prompt us to be positive on the stock

* BUY with a target price of | 4,530

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