Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us  
Google
Web www.equitybulls.com
Research

| More

Infosys - A reality check! - ICICI Securities

Posted On: 2021-04-15 05:00:42 (Time Zone: UTC)


Our anti-consensus sector stance on impending growth disappointments in IT has started playing out. Organic growth reported by TCS / Infosys in Mar-21 (2.6%/2% QoQ, CC) hint at mean reversion towards growth in a typical March quarter even pre-Covid. That challenges the current consensus expectation of structurally higher growth rates for the sector post-Covid. Management commentary on medium-term growth outlook sounded more cautious (vs in previous quarters). Large deal signings (US$2.1bn) were a tad lower than street expectations. Both revenue growth (12%-14% YoY, CC) and EBIT margin guidance (22%-24%) for FY22 were in line with consensus. However, understanding the FX assumptions baked into margin guidance is the key - (could it be 21%-23% without the recent INR depreciation?)! Retention costs (absent over TTM) may become a key overhang on profitability as attrition jumped 520bps QoQ to 15.2%. Both the quantum (Rs92bn) and mode of buyback were disappointing given the tax / signalling inefficiency associated with open market buybacks. As we rebase our exchange rate assumptions (FY22 / FY23E to INR 75 / 76 per USD), our FY22E EPS witnesses an upgrade of 9.3% even as FY23E EPS stays stable. Despite the multiple disappointments and demanding valuations (27x FY22E EPS), we remain buyers given Infosys' relative business momentum in the sector. (1) Intense 2nd wave in India, 2) depreciating INR, and 3) buyback can offer tactical price support.

- Disappointments at multiple levels. Revenue growth (+2% QoQ, CC) fell short of our / consensus expectations (+3%-3.2%). It should be noted this is roughly in line with the average March quarter growth of the company pre-Covid. This further corroborates our arguments that industry growth is unlikely to accelerate materially post-Covid. Strong volume growth (+4.6%) did not translate into a proportionate revenue growth due to offshore shift of the effort mix. Lower than expected impact of wage hikes (130bps) led to a slight beat (+30bps) on consensus' margin expectations. While overall utilisations (82.2%) remained stable, effort mix shifted further offshore (+100bps) aiding margins. While attrition usually inches up post wage revisions, the spike is very sharp this time (+520bps to 15.2%).

- Medium-term outlook sounded more cautious; Guidance on expected lines. Management commentary on medium-term growth outlook sounded more cautious (vs in previous quarters). Large deal signings (US$2.1bn) were a tad lower than street expectations. Both revenue growth (12%-14% YoY, CC) and EBIT margin guidance (22%-24%) for FY22 were in line with consensus. However, understanding FX assumptions baked into margin guidance is the key - (could it be 21%-23% without the recent INR depreciation?)!

- Remain BUYers given the relative business momentum in the sector. As we rebase our exchange rate assumptions (FY22E/FY23E to INR 75 / 76 per USD), our FY22E EPS witnesses an upgrade of 9.3% even as FY23E EPS stays stable. Despite the multiple disappointments and demanding valuations (27x FY22E EPS), we remain buyers given Infosys' relative business momentum in the sector. (1) Intense 2nd wave in India, 2) depreciating INR, and 3) buyback can offer tactical price support.

Shares of INFOSYS LTD. was last trading in BSE at Rs.1425.8 as compared to the previous close of Rs. 1440.75. The total number of shares traded during the day was 778970 in over 25931 trades.

The stock hit an intraday high of Rs. 1480 and intraday low of 1415.3. The net turnover during the day was Rs. 1122869376.


Source: Equity Bulls

Click here to send ur comments or to feedback@equitybulls.com


Disclaimer:The article above is a gist / extract of the original report prepared by the research firm / brokerage firm. This article is not to be considered as an offer to sell or a solicitation to buy any securities. This article is meant for general information only. www.equitybulls.com, its employees or owners or the research firms, its employees or owners won't be responsible for any liability that may arise from information, errors or omissions in these articles. www.equitybulls.com or its employees or owners / the research firms or its employees or clients or owners may from time to time hold positions in securities referred in this article. For detailed research reports, please contact the concerned research firm directly.


Other Headlines:

Q4FY21 Result Update - Pidilite Industries - ICICI Direct

Escorts Ltd - Q4FY21 First Cut - ICICI Direct

Jindal Stainless - Q4FY21 First Cut - ICICI Direct

Maintain BUY on Sonata Software - Growth visibility improves - HDFC Securities

Maintain BUY on KEC International - Near term challenges persist - HDFC Securities

Maintain BUY on Kalpataru Power Transmission - In-line performance - HDFC Securities

Tata power Q4FY21 Results Review - Inline result; alternative to InvIT on cards - HDFC Securities

Mahindra Lifespaces Q4FY21 Results Review - On track - HDFC Securities

Mphasis - Q4FY21 first cut: Muted performance - YES Securities

Voltas - Q4FY21 first cut: All round beat with strong operating performance led by EMPS segment - YES Securities

HG Infra Engineering - Q4FY21 first cut: Stellar performance - YES Securities

Polycab India - Q4 FY21 First cut - YES Securities

JMC Projects (India) Ltd - Q4FY21 Result Update - YES Securities

Asian Paints Ltd - Q4FY21 Result Update - YES Securities

Lupin - Q4FY21 Result Update - YES Securities

Godrej Consumer Products Ltd - Q4FY21 Result Update - YES Securities

Orient Electric Ltd - Q4FY21 Result Update - YES Securities

Matrimony.com - Q4FY21 Result Update - YES Securities

Birla Corporation Ltd - Q4FY21 Result Update - YES Securities

Lupin Q4FY21 Results Review - Positives in the price - HDFC Securities

Jindal Steel & Power - Net debt to remain comfortable as 6mtpa Angul expansion commences - ICICI Securities

Hindalco Industries - Saturation of an earnings trigger - ICICI Securities

Indigo Paints - Differentiation is the key; initiate at ADD - ICICI Securities

Lupin - Margin improvement factored in valuations - ICICI Securities

Blue Star - Focusing on core competencies - ICICI Securities

KEC International - Strong growth, healthy cashflow - ICICI Securities

Kalpataru Power & Transmission - Healthy growth, asset sales to aid cashflow - ICICI Securities

Asian Paints - Leader demonstrating leadership - ICICI Securities

Prince Pipes and Fittings - Beat on all counts - Q4FY21 Result - ICICI Securities

Polymer price tracker - PVC prices fall after a year; volatile journey ahead - ICICI Securities

Westlife Development - Good 4Q; retains store expansion target - ICICI Securities

Pidilite Industries - Input cost inflation impacts performance - ICICI Securities

UPL - Strong volume growth maintained - ICICI Securities

Piramal Enterprises - DTA derecognition and interest reversals weigh on earnings; strategic priorities remain in place - ICICI Securities

Q4FY21 Company Update - Saregama India - ICICI Direct

Q4FY21 Result Update - Asian Paints - ICICI Direct

Cadila Healthcare - Divests animal health business - ICICI Securities

Q4FY21 Result Update - Granules India - ICICI Direct

Q4FY21 Company Update - Firstsource Solutions - ICICI Direct

Q4FY21 Company Update - Sonata Software - ICICI Direct

Company Update - Cadila Healthcare - ICICI Direct

Q4FY21 Result Update - Kalpataru Power - ICICI Direct

Q4FY21 Result Update - KEC International - ICICI Direct

Q4FY21 Company Update - Matrimony.com Ltd - ICICI Direct

Maintain REDUCE on Asian Paints - Exceeds expectations - HDFC Securities

JMC Projects Results Report - Poised for growth - HDFC Securities

Maintain ADD on Godrej Consumers - Miss in 4Q margin; inspiring addition to team - HDFC Securities

Maintain BUY on Birla Corporation - Healthy performance - HDFC Securities

Subscriber watch - Bharti wins more market share across categories - ICICI Securities

Siemens Ltd - Healthy margins with growth recovery - ICICI Securities


Website Created & Maintained by : Chennai Scripts
West Mambalam, Chennai - 600 033,
Tamil Nadu, India

disclaimer copyright © 2005 - 2020