After powerful Infosys results, CLSA, Macquarie, BofA and J.P. Morgan rain upgrades on company

Revenue for Infosys stood at $3,312 mn, growth of 3.2% YoY and 6.1% QoQ while Operating profit was $840 mn, growth of 20.7% YoY and 18.7% QoQ. FY 21 revenue growth guidance revised upward to 2%-3% in constant currency. FY 21 operating margin guidance revised upward to 23%-24%. Q2 revenues grew sequentially by 4.0% in constant currency. Q2 revenues grew YoY by 3.2% in USD; grew by 2.2% in constant currency. Q2 net profit stood at $653 million, YoY growth of 14.7%.

1.  CLSA retains buy rating on Infosys, raises target to Rs 1330 (17% potential upside) from Rs 1180. 

2. BofA Securities reiterates buy rating on Infosys, with price target of Rs 1275.

3. J.P.Morgan reiterates overweight rating, raises target price to Rs 1300 from Rs 1180.

4. Macquarie maintains outperform rating on Infosys, raising target price to Rs 1410 (22% upside potential).

CLSA retains buy rating on Infosys, raises target to Rs 1330 (17% potential upside) from Rs 1180. They say Q2 FY21 displayed an effective sales engine and strong cost management. Q2 earnings growth momentum would rebuild confidence among investors. CLSA thinks Infosys best in class execution and a generous capital allocation policy underlines its position as the best play in I.T. sector theme. Vanguard deal ramp up in Q3 FY21 should help Infosys to meet upper end of guided growth range and provide best double digit revenue CAGR over FY 22-23. Infosys reported 16 large deals and emphasised a healthy deal pipeline. Infosys raised guidance for both FY21 constant revenue growth (to 2-3% from 0-2% earlier) and EBIT margin band (to 23-24% from 21-23% earlier).

Macquarie maintains outperform rating on Infosys, raising target price to Rs 1410 (22% upside potential). They expected Infosys to raise revenue growth guidance for FY21, however, they were surprised when Infosys upgraded the EBIT margin as well. They believe revenue growth will be accelerated and will be aided by large deals. They expect EBIT margins to remain in 23%-24% range for FY22 – FY23. The 3 ‘C’s (cloud transformation, customer experience and core transformation) would drive higher demand for I.T. services in medium term. Strong deal wins with a net new value of $4.5 bn sets the stage for strong 12.5% - 13.6% YoY growth in $ revenue in FY22-23. Salary hikes effective Jan1st 21, variable payouts and hiring will pose headwinds in 2nd half of FY21, which will be absorbed by strong growth leverage and lower SG&A expenses.

BofA Securities reiterates buy rating on Infosys, with price target of Rs 1275. At 2.2% YoY (Constant currency) revenue growth reported by Infosys will remain comfortably ahead of the peer group.  BofA thinks Infosys will benefit from Enhanced investments that are driving up its deal participation and win rates. Infosys gives good visibility on the rest of the year with a strong deal pipeline. Outlook of the financial services vertical is extremely strong while manufacturing and retail are expected to recover gradually.

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J.P.Morgan reiterates overweight rating, raises target price to Rs 1300 from Rs 1180. Infosys delivered a blockbuster Q2 FY21 after a strong Q1 FY21 with another sharp beat on revenues, margin and upgraded guidance. They say Infosys displayed a rare combination of accelerating revenue growth with strong deal wins, inspiring defence on margin execution and cash conservation. Margins expanded 270 bps after a 150 bps increase last quarter (1st half of FY21, margins improved by 430 bps) driving a sharp beat on earnings. FY21 guidance of 23-24% bakes in cost increases from wage increases. Upped FY21 guidance implies strong start to FY22. J.P. Morgan says Infosys remains their top pick in I.T. sector due to the long term growth acceleration in DX (Digital experience) / cloud business generation and AI (Artificial Intelligence).  

(Authored by Rahul Kamdar)