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Growth momentum sustained.

Infosys Limited provides IT consulting and software services, including ebusiness, program management and supply chain solutions. The Group’s services include application development, product co-development, and system implementation and system engineering. Infosys targets businesses specializing in the insurance, banking, telecommunication and manufacturing sectors.

* Infosys Limited posted Q1FY22 revenue of Rs. 27,896cr (+17.9% YoY), aided by strong growth across segments.

* EBITDA grew 21.4% YoY due to increase in revenue and decline in employee expense. EBITDA margin expanded 70bps YoY to 26.6%. As a result, PAT also increased to Rs. 5,195cr (+22.7% YoY).

* Free cash flow at Rs. 6,363cr (+15.2% YoY); FCF conversion at 122.3% of net profit.

* Significant growth opportunity in Digital space will continue to drive company’s performance in the near to medium-term. Hence, we reiterate our BUY rating on the stock with a revised target price of Rs. 1,797 based on 30x FY23E adj. EPS.

Segmental revenue in double digit growth momentum

Infosys posted Q1FY22 revenue of Rs. 27,896cr (+17.9% YoY and +16.9% YoY on constant currency “cc” basis) due to strong performance from its business segments. Financial services and Retail revenue increased by 23.6% YoY to Rs. 9,217cr (+22.6% YoY cc) and 23.1% YoY to Rs. 4,175cr (+22.2% YoY cc), respectively. Manufacturing and Life Sciences revenue rose by 19.8% YoY (+18.5% YoY cc) and 20.1% YoY (+21.2% YoY cc), respectively. Energy and Communication segments revenue rose by 11.4% YoY (+10.5% YoY cc) and 7.5% YoY (+4.6% YoY cc), respectively. Regionally, North America revenue rose 21.1% YoY growth on cc basis. Europe and India posted growth of 12.2% YoY and 20.7% YoY, respectively, on cc basis.

Margins expanded with revenue growth

EBITDA rose 21.4% YoY to Rs. 7,432cr and EBITDA margin expanded by 70bps YoY to 26.6% supported by higher revenue and decline in employee expense, partially offset by increase in cost of sub-contractors and software. EBIT Margin expanded by 100bps YoY to 23.7%. PAT increased to Rs. 5,195cr, a rise of 22.7% YoY, due to increase in operating profit and other income (+30.9% YoY).

Key concall highlights

* In Q1FY22, company won 22 large deals worth US$2.6bn, out of which 9 in financial services, 4 each in retail & energy, utilities, resources and services, 2 in manufacturing, and 1 each in communications, high-tech & life sciences segments.

* Company increased its FY22 revenue guidance to 14%-16% growth on constant currency basis from 12%-14% and operating margin remained at 22%-24%

* Company completed share buy-back of 9.8mn shares worth Rs. 1,542cr at an average price of Rs. 1,569/share.

* During Q1FY22, the company added 113 new clients along with improvement in 100mn client count to 34 (+9% YoY).

Valuation

Strong order book with significant growth opportunity across segments will continue to drive performance. We reiterate our BUY rating on the stock with a revised target price of Rs. 1,797 based on 30x FY23E adj. EPS.

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