Why Infosys share price could still rise another 14%

Market


The Infosys share price opened the day at 1,514, marginally higher than previous closing of 1503.50. Last week, IT stocks were in the limelight due to the third quarter earnings. Sharekhan by BNP Paribas has maintained its buy on the stock post its earnings and has put the target price at 1,730, a 14% upside to today’s opening price despite the short-term challenges it sees for the company.

“Given looming global headwinds, the outlook for financial year 2024 looks uncertain. However, we believe the structural growth story for the Indian IT sector remains intact. We maintain a Buy rating on Infosys with an unchanged PT of 1,730 given strong deal pipeline, its end -to-end capabilities and prowess in digital areas, analytics, automation and Cobalt cloud. We advise investors to adopt a staggered approach to invest into the stock from long-term perspective,” Sharekhan said in a report.

Some other brokerages have also maintained a positive outlook on the stock and the company post its third quarter results.

Here are some key positives and negatives from the Infosys results, as compiled by the brokerage:

Key positives

– Large deal TCVs reported in Q3FY23 was the strongest in the last 8 quarters at $3.3 billion

– FY23 revenue growth guidance increased to 16-16.5% CC

– LTM attrition moderated by 280 bps sequentially. Attrition rate declined to 24.3% in Q3FY2023 versus 27.1% in Q2FY2023.

Key negatives

– EBIT margins was flat sequentially at 21.5% and below our estimate of 22.4%.

– Utilisation rate at 81.7% is the lowest in the past 10 quarters

Earnings forecast for Infosys by Sharekhan

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Earnings forecast for Infosys by Sharekhan (Sharekhan by BNP Paribas)

The key risk to the brokerage’s estimates is appreciation in rupee or adverse cross-currency movements, slackening pace in deal closures, and even a constraint in local talent supply in the US would affect earnings.

Infosys raised its full-year revenue growth forecast amid a robust deal pipeline even as its quarterly earnings missed analysts’ estimates as wage costs soared.

The Bengaluru-based company said it expects revenue to grow 14-16% in constant currency this fiscal, faster than the 13-15% pace it predicted about three months ago. Infosys, however, retained its operating margin forecast at 21-23% for the year to 31 March, though the management expects it to be at the lower end of the range.

 

 


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