Shares of Infosys have plunged 25% so far this year, underperforming the benchmark Nifty 50 index which has fallen 12%. Despite the stock’s sharp correction, it managed to outperform Nifty IT which has fallen 29% so far this year. National brokerage Sharekhan remains bullish on the stock and sees up to 20% rally potential going forward. “Infosys is well positioned to seize opportunities, even with an increased focus on profitability by enterprise customers to reduce costs in a deteriorating macro environment. We expect Infosys to continue to deliver industry-leading organic revenue growth among its large peers in fiscal year 2023E,” the brokerage report states.
Company well positioned to maintain strong growth momentum in the years to come
According to Sharekhan analysts, Infosys’ spending on cloud transformation initiatives continues to catalyze digital transformation. The company’s Cobalt cloud capabilities lead the market across the entire cloud services model. Additionally, it continues to build its expertise in data, analytics, AI, cybersecurity and IoT and invests in strong partnerships with cloud hyperscalers including AWS, GCP and Microsoft Azure, and vendors. SaaS. “The company’s differentiated cloud capabilities have helped it outpace the market growth rate in fiscal 2022 and are well positioned to maintain strong growth momentum in the years ahead,” they said. .
The first half of FY23 should be stronger
The company remains confident of delivering strong revenue growth of 13-15% in constant currency in fiscal 2023E with initial revenue growth, according to the Sharekhan report. “Therefore, H1FY2023 is expected to be stronger in terms of growth compared to H2FY2023. Infosys can benefit from customer cost reduction initiatives in a deteriorating macro environment,” he said.
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Margins expected to improve in the second half of FY23
Analysts said Infosys margins are expected to remain under pressure in the first half of FY23, due to a higher than usual salary revision (beginning in April), supply, increased travel and accommodation costs and investments in capacity building. . Although the significant addition of new entrants in FY2022 will reduce contractor costs, it will be secondary. “Margins are expected to improve in 2HFY2023 as headwinds prevail, driven by contractor cost rationalization, pyramid rationalization and better pricing. The company expects pricing to gradually improve over the course of fiscal year 2023 as it invokes cost of living adjustments (COLAs) and negotiates higher prices on renewals,” they said.
Infosys Stock Rating: Buy
Target Price: Rs 1,730, Upside: 20%
Sharekhan maintains a call to buy on Infosys shares with a target price of Rs 1,730. He, however, lowered his multiple targets given higher interest rates and the possibility of recession in the United States. Brokerage cut FY23-25E earnings estimates by 1-3% to account for moderating USD revenue growth due to unfavorable currency movements and anticipation of moderation technology spending due to growing macroeconomic concerns. However, analysts believe Infosys is well-equipped to deliver leading organic growth among its large peers in FY23, 24 given its proven abilities to execute complex transformation programs at scale.
It is expected to record USD revenue and profit growth of 12.7% and 12.3%, respectively, in fiscal years 2022-2024E. “We continue to value Infosys due to its strong capabilities, strong capital allocation policy, stable current management and strong business portfolio, which are aligned with growth areas . Therefore, we maintain our buy rating on the stock with a revised price target (PT) of Rs 1,730,” they said.
Main upside risks
An appreciation of the rupiah and/or unfavorable cross-currency movements, a slowdown in the pace of closing deals and/or constraints on the supply of local talent in the US would affect earnings remain the main upside risks.
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