Mr. Apurva Prasad, Institutional Research Analyst, HDFC Securities and Mr. Amit Chandra, Institutional Research Analyst, HDFC Securities
We maintain BUY on Infosys (INFY), based on strong growth visibility for FY22 (despite the 4Q revenue miss on offshore impact). INFY's net-new large deal wins of USD 9.3bn (vs. total large deal wins of USD 9bn in FY20) provide high probability to achieve (and outdo) the guided 12-14% CC growth for FY22. Although 4Q deal wins declined sequentially (owing to Daimler deal in 3Q21), net-new large deals were up 19% YoY and digital continues to accelerate >30%, supported by offerings such as Infosys Cobalt. While the supply side metrics are concerning (uptick in attrition/sub-con), large client metrics (USD100mn+) have outperformed peers. 20% higher fresher intake (gross) planned for FY22 will support the demand fulfilment beyond FY22. Stronger FCF growth (54% in FY21 vs. 22% for TCS) is favourable also due to the pay-out benchmarking. We remain positive, supported by >15% EPS CAGR over FY21-23E, >40% RoIC and ~4% FCF yield.
4QFY21 highlights: (1) INFY reported revenue growth of +2% QoQ CC (4.5% QoQ in volume) and 9.6% YoY CC. By verticals, BFSI, Hi-tech and Life sciences delivered healthy double digit YoY revenue growth; (2) EBIT margin stood at 25.4%, declined 94bps QoQ, impacted by wage hike (-130bps), higher SG&A cost (-30bps), higher sub-con cost (-50bps), offset by operating levers including higher offshoring; (3) Wage increase effective July'21 will impact margins in 2QFY22, in addition to Daimler deal transition; (4) Out of the 23 large deals wins in 4Q, six each were in BFSI & Retail, three in Life sciences and two each in Communication/Mfg/E&U/Hi-tech verticals. By region, 16 deals were in the US, six in Europe and one in ROW; (5) Utilisation stood at an all-time high of 87.7% and management expects it to taper down and offshore-mix is expected to remain high in the near term; (6) INFY announced buyback of up to INR 92bn and up to INR 1,750 per share (via open market route).
Outlook: We have factored in USD revenue growth of 16%/12.7% for FY22/23E with 1QFY22 at 3% QoQ. EBIT margin factored in at 23.7/24.2% for FY22/23E. Valuations are at 26.4/22.7x (~10% discount to TCS) with FY21-23E EPS CAGR at 15%.
Shares of INFOSYS LTD. was last trading in BSE at Rs.1398.6 as compared to the previous close of Rs. 1425.8. The total number of shares traded during the day was 753247 in over 40932 trades.
The stock hit an intraday high of Rs. 1435.95 and intraday low of 1375. The net turnover during the day was Rs. 1050610632.