Brokerages bullish on Infosys despite muted performance in Q4; here’s why

Brokerages retained their bullish view on Infosys despite muted performance in the March quarter. The IT major on Wednesday posted a 2.3% quarter-on-quarter fall in consolidated net profit at Rs 5,076 crore in Q3FY21. The figure stood at Rs 5197 crore in the previous quarter ended December 31.

On the other hand, the revenue of the company increased marginally by 1.5% QoQ to Rs 26,311 crore.

Phillip Capital retained ‘Buy’ on Infosys with a price target of Rs 1,540. “Infosys reported muted set of numbers-tad below expectations, which were quite high, to begin with. CC growth of 2% QoQ was below expectations while margins were inline,” it said.

However, it added that Infosys is set to report mid-teen growth in FY22, after a strong performance in Covid impacted FY21. While the stock might remain a bit weak in the near term, due to expectations coming down and relatively expensive valuations, Phillip Capital remains positive for the medium to long term, on the strong growth story, driven by the robust demand environment.

The scrip traded 3.78% lower at Rs 1,345 at around 9.45 am (IST). On the other hand, the benchmark BSE Sensex was down 0.35% at 48,372 at around the same time.

Edelweiss Securities also retained a ‘Buy’ rating on Infosys with an unchanged price target of Rs 2,124. “Q4FY21 revenue growth fell slightly short of the estimate due to movement of work from
onsite to offshore and some third-party deals were absent during the quarter,” the brokerage added.

Infosys has guided for 12-14% revenue growth in FY22 and an operating margin of 22-24%. For Q4FY21, digital revenue grew 34.4% and now contributes 51.5% to overall revenue.

Edelweiss believes that digital, cloud and data are likely to continue to drive growth ahead. The company has also announced another round of wage hikes in July 2021 after a first-round at the start of the year. This, along with return of travel costs, are likely to keep margins under pressure from H2FY23. Cost optimisation measures are likely to aid margins.