Infosys - Q4FY22 Result Update - Margin pressure overpowering revenue growth

Ms. Aditi Patil - Research Associate at Prabhudas Lilladher

Quick Pointers:

- Positive surprise in revenue guidance (13-15% YoY CC) and strong headcount addition (~22K, 7.5% QoQ, 21%YoY) indicate strength in demand

- EBIT margin guidance reduced to 21-23% for FY23 (vs 22-24% for FY22)

We cut Infy's rating to Accumulate from Buy and DCF based target price to Rs. 1899 (earlier: Rs.2204) as we cut EPS estimates by 10.6%/8.2% for FY23/24E led by ~100-130bps cut in EBIT margins, lower than expected exit revenue growth rate, and increase in risk free rate to 7.2% (earlier: 6.8%). EBIT margin guidance of 21-23% for FY23 vs cons expectations of 22-24% came as negative surprise as it is below pre-covid levels (23%+ over FY17-19).

Strong revenue guidance of 13-15% YoY CC for FY23 (vs cons expectations of 12-14%) despite low TTM TCV of $9.5 bn (vs $14.1 bn last year) led by largest ever large deal pipeline, strong client metrics and net new wins (40% in FY22) indicate Infy's ability to capitalize strong demand environment. We have already baked in 13.8% YoY USD growth for FY23, however negative surprise in margins can be a drag on FY23 EPS. Infy has already reported weak exit EBIT margins of 21.6% in Q4 (-200bps QoQ). Lower than expected EBIT margin guidance of 21-23% for FY23 factors in headwinds from supply side cost pressures, return of travel and facility costs, investments in building deeper digital capabilities and potential drop in utilization levels.

We assign DCF based TP of INR 1899 (earlier: 2204) with implied target multiple of 28x on FY24 EPS (earlier: 30x). Infy is currently trading at 30x/26x on earnings of INR 57.8/68.4 for FY23/24E respectively with revenue CAGR of 12.6% and EPS CAGR of 14.1% over FY22-24E.

Shares of Infosys Limited was last trading in BSE at Rs. 1748.65 as compared to the previous close of Rs. 1741.45. The total number of shares traded during the day was 201207 in over 10285 trades.

The stock hit an intraday high of Rs. 1759.45 and intraday low of 1732.25. The net turnover during the day was Rs. 351412970.00.

Source : Equity Bulls

Keywords

Infosys INE009A01021 INFY Q4FY22 ResultUpdate PrabhudasLilladher