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Decent quarter on strong topline

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.

* Revenue grew by 13.1% YoY aided by double digit growth in Financial services, Hi-Tech and Life sciences verticals.

* EBIT margins expanded 330bps to 24.5% driven by higher utilization and offshore mix levels which further enabled a 17.5% growth in company’s bottomline taking it to Rs. 5,076cr.

* Recurring demand in its traditional verticals and significant growth opportunity in Digital space will continue to drive company’s performance in the near to medium term. We hereby reiterate our BUY rating on the stock with a revised TP of Rs. 1,614 based on 27x FY23E adj. EPS.

Broad-based segmental growth aids overall revenue

Q4FY21 revenue went up 13.1% YoY to Rs. 26,310cr (+9.6% YoY in constant currency “cc” terms) owing to strong performance seen across all of its business segments. Financial services revenue rose by 19.2% YoY (+15.6% YoY on cc basis) to Rs. 8,677cr, whereas Hi-Tech and Life Sciences segments grew by 15.9% YoY (+15.5% YoY cc) to Rs. 2,123cr and 21.1% YoY (+18.3% YoY cc) to Rs. 1,796cr respectively. Communication segment revenue stood at Rs. 3,155cr, growing at 4.6% YoY (-0.8% YoY cc), while that of Energy segment increased by 8.1% YoY to Rs. 3,234cr (+4.9% YoY cc). Revenues from retail segment stood at Rs. 3,902cr (+7.7% YoY, +4.5% YoY cc). Regionally, North America registered a 12.3% YoY growth in topline on cc basis, with Europe and India showing growth of 5.1% and 30.8% YoY, respectively.

Margins remain steady on account of cost optimization

With both utilization and offshore effort mix at all-time highs, EBIT Margin expanded by 330bps YoY (contracted by 95bps QoQ) to 24.5%. Sequential contraction is primarily due to compensation increases rolled out in this quarter and also due to slight increase in G&A costs partially offset by benefits from cost optimization techniques.

Key concall highlights

* During Q4FY21, company won 23 large deals worth 2.1bn dollars, of which share of new deals is at 52%. Digital portfolio contribution to overall revenue continued to improve (51.5% in Q4FY21 vs 50.1% in Q3FY21).

* Company reached all-time high utilization levels of 87.7% (vs. 86.3% in Q3FY21). Meanwhile, employee attrition rose to 15.2% (vs. 10.0% in Q3FY21).

* Management guided full-year revenue growth for FY22 to come in around 12-14% in cc terms, with expected EBIT margins of 22-24%.

* Board approved a final dividend of Rs. 15 per share (totaling Rs. 27 per share for FY21), and also approved buyback of equity shares up to Rs. 9,200cr.

Valuation

Strong traction and growth momentum, large deal wins coupled with improved focus on executional abilities improves the medium-term outlook of business. Along with these, Infosys’ focus on margins and FCF growth should drive stock performance. Hence, we reiterate our BUY rating on the stock with a revised TP of Rs. 1,614 based on 27x FY23E adj. EPS.

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