HDFC Securities maintains BUY on Infosys - Steady progression

Mr. Apurva Prasad, Institutional Research Analyst, HDFC Securities and Mr. Amit Chandra, Institutional Research Analyst, HDFC Securities.

Infosys (INFO) posted a slightly higher revenue growth in Q3 and increased its FY23E revenue guidance. Revenue growth at 2.4% QoQ and 13.7% YoY CC was ahead of consensus, supported by higher pass-through revenue which was linked to integrated deals. INFO's revenue guidance increased from 15-16% CC to 16.0-16.5% CC, implying ~2.5% QoQ for Q4FY23E. Key drivers for INFO include the following: (1) strong large deal bookings with USD 3.3bn TCV in Q3; 9MFY23 net-new large deal bookings that were up 30% and commentary on pipeline supporting growth visibility; (2) recovery expected in North America with 25 of the 32 large deals from NorthAm; (3) acceleration in vendor consolidation and cost take-out deals reflected in growth in core services (vs. historical decline); and (4) strong traction in E&U and manufacturing verticals. On the flipside, however, (1) large deal aggression is getting reflected in higher pass-through component (30% of incremental sequential growth) and (2) BFSI vertical (-1.7% QoQ) underperformed, impacted by higher furlough, some project completion and softness in mortgage & investment banking sub[1]segments. Margin levers include large scope for utilisation increase, following strong fresher hiring. Maintain BUY on INFO with a TP of INR 1,815, based on 25x Sep-24E EPS and supported by 13% EPS CAGR over FY22-25E.

Q3FY23 highlights: (1) Revenue stood at USD 4,659mn, 2.4% QoQ and 13.7% YoY CC. (2) Growth was driven by manufacturing vertical (Europe-led), E&U vertical and life-science vertical posting 6.3/8.1/6.9% QoQ respectively. (3) Large deal bookings were strong at USD 3.3bn (32 deals), including USD 2.2bn renewals and USD 1.1bn net new; 9MFY23 net new large deal bookings stood at USD 3.5bn as compared to USD 2.7bn in 9MFY22. (4) Digital services (63% of revenue) grew 21.7% YoY CC and core services grew 2.4% YoY CC. (5) EBITM was flat at 21.5%, impacted by +40bps from FX, +70bps from cost optimisation including lower sub-contracting, offset by -80bps from higher third-party cost and lower utilisation and -30bps from higher SG&A expense.

Outlook: We have factored in USD revenue growth of +12.9/10.0/10.3% and EBITM is factored in at 21.6/21.5/21.5% for FY23/24/25E.

Shares of Infosys Limited was last trading in BSE at Rs. 1503.50 as compared to the previous close of Rs. 1480.55. The total number of shares traded during the day was 284508 in over 16063 trades.

The stock hit an intraday high of Rs. 1519.20 and intraday low of 1468.00. The net turnover during the day was Rs. 425828714.00.

Source : Equity Bulls

Keywords

Infosys INE009A01021 INFY Q3FY23 ResultUpdate HDFCSecurities