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Infosys stock tests sub-Rs 1,600 level. Where is it headed after the Q4 miss? – Economic Times

NEW DELHI: Shares of Infosys on Monday saw their steepest daily fall in two years after the IT major’s fourth quarter results failed analysts on many parameters, leading to both earnings downgrades and target price cuts.

Morgan Stanley has cut its FY23 and FY24 EPS estimates for Infosys by 2-3 per cent and now sees the stock at Rs 1,970 against Rs 2,050 earlier. JPMorgan has cut its earnings estimates by 5-7 per cent and has a target of Rs 2,200 against Rs 2,300 earlier. Jefferies has trimmed its target to Rs 2,050 from Rs 2,135 citing 3-6 per cent cut in earnings estimates. CLSA (4-5 per cent) and Nomura India (5-7 per cent) have cut earning estimates in 4-7 per cent range. While CLSA has retained its Rs 2,040 target, Nomura has reduced its target to Rs 2,050 from Rs 2,160.

On Monday, the scrip fell 9 per cent to hit a low of Rs 1,592.05. The scrip had fallen 11.99 per cent in trade on March 23, 2020. The scrip had closed 10 per cent lower that day and had risen in the following four sessions.

“Infosys’ dream run took a pause in 4QFY22 as a client-specific situation affected the revenue momentum, and thereby margins. While demand tailwinds should bring the revenue growth back on track soon – 13-15% constant currency (CC) YoY revenue growth guidance for FY23 was ahead of expectations – margin recovery may take time given persistent supply-side pressures,” CLSA said.

The brokerage said it has cut its FY23 EPS forecast by 5 per cent and FY24 by 4 per cent and believe the earnings cut could dampen investor sentiment in the near term.

“However, the stock’s 8 per cent year-to-date underperformance limits the downside, in our view,” it said.

Infosys disappointed with across-the-board miss even after accounting for seasonal weakness of March quarters, said Kotak Institutional Equities.

“Front-ended revenue growth guidance of 13-15% impressed, while timing and quantum mismatch between headwinds and tailwinds has led to a reset in the EBIT margin band to 21-23 per cent. Net result is EPS cut of 2-4 per cent for FY2023-24, never a welcome prospect,” Kotak said while suggesting a fresh target of Rs 1,975.

Emkay Global has cut its FY23 EPS estimate by 7.2 per cent and FY24 estimates by 4.9 per cent, factoring in the Q4 miss and lower margin guidance.

“The operating performance miss would weigh on the stock in the near term. We maintain Buy with a revised target of Rs 1,970 at 28 times March 2024 EPS, considering broad-based demand, steady market share gain and robust cash generation,” it said.

Nomura India said FY23 CC revenue guidance for Infosys at 13-15 per cent was ahead of Street estimates but margin guidance at 21-23 per cent fell short of it.

The March quarter numbers, it said, disappointed on most parameters, with revenue growth at 1.2 per cent sequentially in constant currency terms missing consensus estimate of 3 per cent, growth partly due to a one-off client-specific issue.

EBIT margin of 21.5 per cent also fell below consensus estimate of 23.2 per cent, it noted.

Infosys said its revenue growth was 22.7 per cent year-on-year compared to 15.75 per cent for TCS. Similarly, it reported a 12 per cent year-on-year rise in net profit, compared to 7.4 per cent for TCS.

Margins for Infosys declined 200 bps sequentially to 21.5 per cent in March quarter, mainly due to supply-side pressure, higher subcontracting cost, fewer working days and lower utilisation. Attrition inched up to 27.7 per cent due to a higher base. Digital revenue grew at 38.8 per cent YoY in CC terms and accounted for 59.2 per cent of the total revenue. Large deal-wins stood at $2.3 billion.

Motilal Oswal Securities sees the stock at Rs 2,000.

“We expect Infosys to deliver margin on the higher side of its guidance band, with strong growth and reduced dependence on sub-contractors as attrition falls. We expect it to be a key beneficiary of an acceleration in IT spending. Based on our revised estimates, the stock is currently trading at 25 times FY24 EPS. We value the stock at 28 times FY24E EPS, implying a target price of Rs 2,000,” Motilal Oswal said.