What should investors do in Infosys stock price after Q4 prints, buy or sell?

Infosys reported a weak quarter for the period ending March 31, 2023 (Q4FY23). The Q4 numbers were majorly lower-than-estimated, however, a sharp decline in attrition rate and strong deals intake came as a positive factor. Also, the IT giant has declared a final dividend of 17.50 per share for FY23. Market will react to Infosys’ financial results from Monday, and it is expected that the stock price is likely to be under pressure. 

The company announced its Q4 results after market hours on Thursday last week. Before the Q4 earnings report, Infosys stock dipped by 2.8% to end at 1,388.60 apiece on BSE. The stock dropped by over 3% on NSE.

In Q4FY23, the IT giant’s PAT came in at 6,128 crore down by nearly 16% QoQ but up by nearly 6% YoY. Similarly, revenue from operations dipped by 2.2% QoQ but was higher by 16% YoY to 37,441 crore in the quarter. Q4 year-on-year growth was 8.8% and the sequential decline was 3.2% in constant currency terms. However, the operating margin for the quarter was 21%. 

Meanwhile, continuing the recent trend, attrition declined further in Q4 to 20.9%. Infosys reduced its workforce by 3,611 employees to 3,43,234 headcount as of March 31, 2023.

Should you Buy or Sell Infosys share price after Q4 results? 

Research analysts at ICICI Securities in their post-Q4 report on Infosys said, the company has high exposure to the digital transformation agenda of clients, which is seeing a delay in decision making, led to a sharp revenue drawdown in Q4FY23.

Brokerage’s report further said, “We see INFY’s FY24 revenue growth guidance at 4-7%, implying 1.5% to 3.2% CQGR, reflecting a strong pick-up in growth mostly in H2FY24E. We are currently building in a weak 1.4% QoQ CC revenue growth guidance for Q1FY24, followed by a sharp pick up in the remaining 9MFY24E. This makes us forecast 6.4% CC revenue growth in FY24E, closer to the higher end of the guidance.”

For fiscal years FY25E/26E, ICICI Securities largely maintained its double-digit revenue growth forecast of 13%/12.4% in CC terms as structural demand drivers for the industry around cloud migration/digitalisation and cost optimisation remains intact. However, on EBIT margin, the brokerage lowered its margin assumption over FY24-26E as it believes that Infosys is unable to recoup margins in the mega deals it has signed till now which could repeat itself in the future with other mega deals in the pipeline.

Accordingly, ICICI Securities note said, “We lower our FY24-26E EBIT forecasts by up to 11% and EPS by up to 7% on account of higher other income. We lower our target price by 7% to Rs1,641 (from Rs1,759), implying an 18% upside and maintain our BUY rating on the stock.”

Among key risks to its thesis on Infosys, ICICI Securities listed — double-digit revenue growth assumption for FY25E which is predicated on structural demand drivers for the industry and the fact that technology absorption as % age of global GDP is increasing. There could be scope for de-rating for Infosys and the entire Indian IT sector, in the brokerage’s view, if the double-digit revenue growth assumption for FY25E seems unlikely.

Further, Reliance Securities analysts in their note said, “We believe that situation deterioration just started in FebMar’23, which would escalate further in 1HFY24, before bottoming out. Thus, uncertainty in US and EU region coupled with pricing pressure would lead to a challenging FY24. FY24 would see the sizable impact of the slowdown and adverse macros, which is also reflected in major revenue and margin miss.”

Also, worsening macros, lower revenue, and earnings growth would lead to valuation de-rating to pre-Covid levels.

In view of rising concern on the global slowdown and delayed decision-making in US, Reliance Securities note said, we remain cautious. Due to lower earnings growth and valuation, we downgrade INFO to SELL from BUY with revised TP of Rs1,350, (vs. earlier Rs1,750), valuing stock at a revised P/E multiple of 18x on FY25E earnings (vs. earlier 22x).”

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