Infosys share price: Infosys price targets soar post Q2 show: FY21 guidance seen as conservative

NEW DELHI: Infosys’ Street-beating show for September quarter, record deal wins and an upgrade in full-year earnings guidance have nudged analysts increase their FY21 earnings forecast for the stock by 4-12 per cent.

The IT major reported better numbers than peers TCS and Wipro for the quarter, and also announced salary hikes for its employees from January onwards, which pushed the stock price up 3 per cent in early trade on Thursday.

The Bengaluru-based firm increased its full-year revenue growth guidance to the 2-3 per cent range in constant currency terms (CC) from 0-2 per cent earlier. Analysts said the revised guidance still looks conservative, and one can expect surprises in the coming quarters.

This is because the projection implied a revenue growth of 2 per cent in third and fourth quarters at the upper end of the guidance, which looks modest given that proceeds from the recent Vanguard deal will flow into revenues fully in December quarter, said Kotak Securities.

Infy vs TCSAgencies

For the September quarter, the company reported a 4 per cent YoY growth in revenue in constant currency terms, against 3 per cent YoY degrowth in CC revenue for TCS and 3.4 per cent YoY drop for Wipro during the same quarter.

The IT giant has also increased its Ebit margin guidance for the year to 23-34 per cent from 21-23 per cent earlier. Ebit margin for the second quarter came in at 25.4 per cent, up 370 basis points over the year-ago quarter

Motilal Oswal Securities expects Infosys to beat guidance in FY21, notwithstanding the margin headwinds due to wage hikes in March quarter, large deal ramp-up and seasonality factors.

During the quarter, the company added five clients in the $100 million bucket while total deal wins for the quarter stood at $3.15 billion. Digital revenues for the quarter rose 25 per cent YoY and accounted for 47 per cent of total revenues.

The current technology wave has been the biggest in the sector’s history and consensus says the IT companies will keep upgrading numbers and guidance from here on, said Edelweiss Securities.

“Digitalisation is a more potent catalyst for Infosys than IMS (infrastructure management services), which had lifted the market capital of competition 9.8-14.5 times over 2009–16,” the brokerage said. It revised its price target for the stock to Rs 1,850 from Rs 1,688 earlier.

For the quarter, Infosys reported a 20.50 per cent year-on-year (YoY) increase in net profit at Rs 4,845 crore compared with Rs 4,019 crore reported for the same quarter last year. Analysts in an ETNow poll had estimated the profit figure at Rs 4,478 crore.

Consolidated revenue grew 8.60 per cent YoY to Rs 24,570 crore. In dollar terms, revenue increased 3.2 per cent YoY and 6.1 per cent QoQ to $3,312 million.

Goldman Sachs sees the stock at Rs 1,369. The brokerage has revised its EPS forecast for the IT major by 4 per cent for FY21-23 on the strengthening of digital capabilities.

JPMorgan said Infosys delivered a ‘blockbuster sequel’ and it was ‘superlative performance all around’, which made the stock its top pick in the IT space. This brokerage has a target of Rs 1,180 on the stock.

Jefferies has a target of Rs 1,140. as it acknowledged the revenue beat and the increase in yearly forecast. “Cloud and digital contributed nearly 50 per cent to revenue versus IMS or ERP, which were clocking less than 10 per cent at beginning of upcycle. It is first disruption that’s a technology enabler and margin accretive. Hence, we believe even big names like Infosys, despite being $66 billion in market value, can quickly multiply. However, we are constrained by the structure of assigning multiples to FY22E EPS,” Edelweiss said.

Emkay Global said that Infosys continued to outperform TCS in revenue growth, with the margin differential narrowing. At present, Infosys trades at a 15 per cent discount to TCS’ multiples compared with 30 per cent in early 2020.

Emkay expects the valuation gap with TCS to narrow further with sustained strong operating performance.

Motilal Oswal Securities has upgraded its FY21/FY22E EPS estimates for Infosys by 9 per cent and 12 per cent, respectively.

“Infosys should be a key beneficiary in terms of recovery in IT spends in FY22. Additionally, leading operational performance in 1HFY21, coupled with strong deal wins, should translate to strong outperformance on EPS growth vis-a-vis the sector,” the brokerage said.

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