Large Cap : Buy Infosys Ltd For Target Rs.2,299 - Geojit Financial
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Resilient performance; Outlook promising
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, telecom and manufacturing sectors.
* Revenue rose 22.9% YoY to Rs. 31,867cr in Q3FY22. The Company posted Q3FY22 PAT of Rs. 5,809cr (+11.8% YoY). Retail, communication, manufacturing, and life sciences collectively showed 20% YoY growth
* EBITDA margin contracted by 230bps YoY to 26.3% due to supply side issues, lower utilization, and higher costs.
* With continued growth momentum in revenues, we reiterate our BUY rating on the stock with a revised target price of Rs. 2,299 based on 32x FY24E adj. EPS.
Double digit growth momentum
Topline expanded to Rs. 31,867cr in Q3FY22 (+22.9% YoY), mainly driven by healthy growth in manufacturing segment (+48.9% YoY to Rs. 3,598cr) due to continued ramp up in Daimler deal and steady momentum in new deal wins. EBITDA grew 13.1% YoY to Rs. 8,383cr in Q3FY22, however, EBITDA margin contracted by 230bps YoY to 26.3% due to huge cost breakout out initiatives taken to improve business resilience. Return on equity increased further to 30.4%, an increase of 3% over Q3 of the prior year, driven by robust performance and consistent capital return to share buybacks and increased dividend payout.
Key concall highlights
* Infosys advanced Indian Income tax portal, where more than 5.8cr tax return were filed during the assessment year 2020-21, and the company is also working for further modules and updation.
* Update on the headcount - the company recruited ~12,450 employees in the quarter, highest recruitment rate ever.
* Balance sheet continued to be strong and debt-free. Company was able to maintain strong consolidated cash and investments of Rs. 4.28 billion even after paying over 850 million of interim dividend during the quarter
* The management upgraded its annual revenue growth guidance from 16.5% to 17.5% moving up from 19.5% to 20% in constant currency
On-course to build robust customer base
Company has bagged 25 large deals with over 15 million TCV totaling $2.5 billion of TCV. The share of new deals increased in Q3 to 44% within the large deal numbers. Client metrics improved further with 100 million client count increasing to 37, an increase of 8% YoY. In last quarter added clients i.e., 111 new clients operating parameters remain robust, but utilization was 88.5% slightly lower than the previous quarter due to supply side pressures.
Valuation
Infosys is expected to fare better on the back of the digital transformation wave with the influx of 5G network which will drive multi segmental growth in upcoming years We expect earnings to grow at healthy 16% CAGR over FY21-24E. We reiterate our BUY rating on the stock with a revised target price of Rs. 2,299 based on 32x FY24E adj. EPS.
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