Buy Infosys Ltd for Target Rs.1,494 - Yes Securities Ltd
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Broadly inline performance; Revenue guidance
for FY24 lowered to 1.5% to 2.0% on demand
concerns
Result Synopsis
Infosys (INFO) reported broadly inline performance for the quarter. The revenue growth was above estimates; while EBIT margin was inline with expectation. It reported decrease in revenue by 1.0% QoQ in cc terms. Revenue decreased by 1.2% QoQ in USD terms (down 0.4% QoQ in INR terms). EBIT margin decreased by 71 bps QoQ to 20.5% on impact of wage hike during the quarter.
The near term demand environment remains challenging as clients remain cautious regarding the evolving macroeconomic situation in the US and Europe and there has been slowdown in discretionary tech spending in sectors such as Hitech, Retail, Telecom, etc. and it continues to impact near term revenue performance. Management has lowered FY24E revenue growth guidance to 1.5% to 2.0% in cc terms from earlier guidance of 1.0% to 2.5% on account of near term demand concerns. Employee attrition continues to decline and should support operating margin going ahead. We estimate revenue CAGR of 11.2% over FY23?26E with average EBIT margin of 21.9%. We maintain our BUY rating on the stock with revised target price of Rs 1,870/share at 22.5x on FY26E EPS. The stock trades at PER of 20.88x/18.0x on FY25E/FY26E EPS.
Result Highlights
* Reported revenue of Rs 388.2bn (down 0.4% QoQ in INR terms, down 1.2% QoQ in USD terms). The revenue decreased by 1.0% QoQ in cc terms. In terms of verticals, the YoY growth was led by Manufacturing (up 10.6% YoY in cc terms) and Life Sciences (up 6.3% YoY in cc terms).
* EBIT margin decreased by 71 bps QoQ to 20.5%, led by increase in Direct Cost (up 0.8% QoQ) during the quarter.
* Reported Large deal wins of $3.2bn vs $7.7bn in Q2FY24.
* Gross client addition was 88 vs 100 in Q2FY24. Days sales outstanding increased to 72 days vs 67 in Q2FY24..
* Offshore effort mix increased by 20 bps QoQ to 75.6%. Added (6,101) employees in the quarter to close at 3,22,663 employees. LTM attrition was down 170 bps QoQ to 12.9%. Utilization (excluding trainees) was up 90 bps QoQ to 82.7%.
* FY24 revenue growth guidance revised to 1.5%-2.0% in cc terms and operating margin guidance retained at 20%-22%.%.
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