Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us  

| More

HDFC Securities Institutional Research Desk: Report on Infosys - On the back foot

Posted On: 2023-04-15 21:40:46 (Time Zone: IST)

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

The near-inevitable happened, but Infosys' (INFO) Q4 can pass on as an aberration even as macro headwinds persist. The low probability sequential decline (eight times in the last sixty quarters and four times ex-GFC and Covid quarters) was due to a combination of deal cancellations and deferrals largely centric in NorthAm (BFSI & communication vertical in NorthAm was 70% of the sequential drop). So the cut in estimates is a bigger function of the FY23 exit rate rather than the guidance provided (4-7% CC). We reckon that there's a high probability of INFO delivering the mid-point of its guidance band and improving its growth trajectory beyond. We also believe that there's a low probability of structural risk to the margin. However, recent senior-level exits and the possibility of continued stress from large accounts are risks to growth. We cut estimates by 4-5% and downgrade INFO to ADD (from BUY earlier). Our revised TP of INR 1,470 is based on 21x Dec-24E (25x earlier) which is ~20% discount to TCS' valuations based on relative growth discount.

Guidance not as bad: The annual guidance is not as bad as it seems - we were expecting 5 to 8% CC guidance (guidance of 4-7% CC). What's more important is the implied growth rate between quarters is a strong 2.3% CQGR which is similar to its last 15Y average. So it's essential to notice the nuance between the annual guide (which is the third-lowest in the last 15 years), and (more importantly) the sequential growth built-in which is similar to the historical average. Similar sequential growth in FY25E takes the full-year growth to double digits. We now expect INFO's growth below TCS for FY24E which is also based on the portfolio mix (relative differential between NorthAm and UK portfolio and the relative weakness and strength in those geographies).

High probability to deliver guidance mid-point or above: So what gives us the confidence that INFO can deliver the mid-point of its guidance in FY24E: (1) High correlation between historical net new large deal bookings and incremental revenue implies high probability for USD 970mn incremental revenue (vs. 5Y/10Y average of 1.45bn and USD 1bn incremental revenue); (2) increase in cost optimisation deals reflected in better trajectory in core services (flat sequentially vs. declining 1-2% sequentially pre-Covid), supported by full stack offering + offshore leverage and highest-ever large deal pipeline including mega deals (although slower decision cycle); (3) notwithstanding the Q4 shocker and the non[1]sacrosanct nature of guidance, INFO's execution has an impressive track record - upward revision or static guidance across quarters in >80% of the quarters since FY10 and historically (last 15Y) the company has beaten its annual guidance by 1.5% (exhibit 2 & 3); (4) industry estimates of strong contracting activity persist which is in sync with INFO's commentary on pipeline; the delay in conversion and ramp-downs of some large accounts are more short-term in nature or have a pent-up element.

Shares of Infosys Limited was last trading in BSE at Rs. 1388.60 as compared to the previous close of Rs. 1428.45. The total number of shares traded during the day was 609878 in over 44382 trades.

The stock hit an intraday high of Rs. 1413.00 and intraday low of 1383.60. The net turnover during the day was Rs. 850053027.00.

Click here to send ur comments or to

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., 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. 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:

CRISIL Ratings: Higher workplace occupancy to light up cigarette volume 7-9%

CRISIL Ratings: Apparel retailers to grow 7-8% this fiscal via expansion, festival spur

CRISIL Ratings: For tea companies, ~8% revenue degrowth brewing this fiscal

CRISIL Ratings: Revenue of paper makers to crumple 8-10% this fiscal

ICRA expects banking sector to stay resilient, outlook remains Positive

CRISIL MI&A: Red-hot domestic demand to stave off steel price melt this fiscal

CRISIL Ratings: Replacement demand to drive tyre volume up 6-8% this fiscal

CRISIL Ratings: Home textiles makers to weave revenue, profitability rebound this fiscal

Capital outlay on roads, renewables seen rising ~35% in this and next fiscals to Rs ~13 lakh cr, backed by strong execution pace

Softening demand to moderate Indian IT services industry growth to 3-5% in FY2024: ICRA

CRISIL Ratings: Telcos may dial up Ebitda 15-17% to Rs 1.2 lakh crore this fiscal

CRISIL Ratings: Social welfare spend of states to hit a decadal high this fiscal

CRISIL Ratings: Footwear sector revenue to tread ~11% higher this fiscal

CRISIL Ratings: Robust demand to whip up dairy industry revenue 14-16%

Indian hospital industry's operating profit margin will remain healthy at over 22% in FY2024: ICRA

Weak overseas demand to snip 5-6% off jute revenue this fiscal - CRISIL

ICRA expects the telecom services industry to report moderate revenue growth of around 7-9% in FY2024 amid high capex spends

CRISIL - Viscose staple yarn makers set for 10-12% revenue growth this fiscal

Sugar mills seen unscathed despite pricier cane, lower exports - CRISIL

CRISIL Ratings: Specialty chemicals on domestic drive, revenue seen growing 6-7%

CRISIL Ratings: Higher ad spends to lift revenue 13-15% for print media this fiscal

Paytm: Top brokerages, such as ICICI Securities, Axis, Dolat lift Paytm's target price to Rs. 1250

CRISIL Ratings: Securitisation volume surges 60% to first-quarter peak

CRISIL Ratings: FMCG sector to witness 7-9% rise in revenue this fiscal

CRISIL MI&A and ATMA: Tyre industry on a roll, driving towards doubling in size

CRISIL Ratings: Slowing US, EU to chip 6-8% away from handicraft sales this fiscal

CRISIL MI&A: One out of five MSMEs to see stretch in working capital days

Yes Securities Identifies Rural India as Key Driver of Economic Recovery in Latest Report

CRISIL Ratings: Revenue of automotive component makers to grow 10-12% this fiscal

CRISIL: Residential real estate sales to grow 8-10% this fiscal

CRISIL MI&A: Cement prices to dip 1-3% this fiscal despite healthy demand

CRISIL Ratings: Aircraft MRO services revenue could leap 3x in 5 fiscals

Demand pressures to moderate revenue growth of Indian fashion retail entities to 10% in FY2024: ICRA

CRISIL Ratings: Revenue of organised gold jewellers to rise 16-18% this fiscal

CRISIL Ratings: Revenue of top 18 states to grow at 6-8% this fiscal

Automobile Sector - Monthly Quick View - May'23 - Steady YoY and MoM Growth on Low Base; UVs are Clear Winner...

CRISIL Ratings: New guidelines lend much-needed clarity to FLDG usage

MSP for kharif crops - Views of Pushan Sharma, Director - Research, CRISIL Market Intelligence and Analytics

PMI Services logs a record high, Employment scenario, however, remains a concern

Road construction to witness 16-21% jump in FY2024, ahead of General Elections: ICRA

Sustained demand momentum to drive double-digit revenue growth for the Indian hotel industry in FY2024: ICRA

HCL Technologies Ltd - Q4FY23 Result First Cut - A marginal miss on major parameters, though PAT beats expectations

Indian quick-service restaurant industry to witness strong growth in near to medium term with expected ramp-up in store additions: ICRA

Infosys Ltd. Q4FY23 Result First Cut - A miss on all fronts

Healthy credit growth of NBFCs and HFCs led to highest post-pandemic quarterly securitisation volumes in Q4 FY23, estimated at ~Rs 61,000 crore: ICRA

Impact of Monsoon forecast on Markets - Reliance Securities

HDFC Securities Institutional Research Desk: Report on Kolte Patil Developers - Premiumisation to drive the next leg of growth

Operating margin of domestic base metal entities to remain range-bound at 19-20% in FY2024: ICRA

HDFC Securities Institutional Research Desk: Report on QSR Thematic - QSR: Fishing time?

HDFC Securities Institutional Research Desk: Report on BFSI - The changing contours of debt financing

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

disclaimer copyright © 2005 - 2020