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Strong revenue, margin resilience is key…

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 >58% of revenues from digital technologies

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

Q3FY22 Results: Infosys reported robust Q3FY22 results in revenue terms.

* Digital revenues rose 41.2% YoY. It now contributes 58.5% of revenues

* Margins were resilient at 23.5% despite supply side challenges

* Revised revenue guidance upwards from 16.5-17.5% earlier to 19.5-20.0% for FY22E and maintained margin guidance at 22-24% for FY22E

What should investors do? Infy’s share price has grown by ~4.4x over the past five years (from ~| 424 in January 2017 to ~| 1,897 levels in January 2022).

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

Target Price and Valuation: We value Infosys at | 2,300 i.e. 32x P/E on FY24E EPS

Key triggers for future price performance:

* Differentiated digital and cloud capabilities to drive growth

* Growth remained broad-based and deal momentum robust, with digital transformation rapidly scaling across verticals and regions

* Infosys to register industry leading revenue growth (14.9% CAGR in FY21- 24E)

* 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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