Infosys results TODAY: Expert pegs target price at Rs 1560-Rs 1600

Infosys Share price: Kotak Institutional Equities has forecast constant currency (CC) sequential revenue growth of 3% led by ramp of large deals and strong bookings of earlier quarters. March is a seasonally weak quarter for Infosys. Kotak has also forecast EBIT margin decline of 115 bps sequentially largely on the back of wage revision and lower utilization rates. December 2020 quarter utilization rate (excluding trainees) of 86% is unsustainable in our view and will decline. Infosys share price Rs 1403, Rs 23 or 1.6%.  

Kotak says in note that FY2022E revenue growth and EBIT margin will be influenced by magnitude of pass through element in Daimler deal. Assuming a modest pass through element, Kotak expects Infosys to guide for 12-14% on revenues and 22-24% on EBIT margin for FY2022E. Deal wins will be robust but will decline from the previous quarter. 

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Kotak says investor focus will be on:

(1)   deal structure, revenues and profitability dynamics of the Daimler deal
(2)    composition of guidance i.e. whether it is front-ended or back-ended
(3)   outcome of the annual budgeting cycle and its implications for Infosys
(4)   the company's view on IT spending trend in the medium term
(5)   long-term sustainable revenue growth
(6)   M&A strategy given a sharp increase in transactions in the past two years
(7)   impact on margins from war for talent and the timing of next round of wage revision
(8)   attrition rates.

Avinash Gorakshkar, Director Research at ProfitMart Securities said that Infosys has taken nice trend line support. The Cup & Handle break out is also confirmed after Rs 1400 levels being crossed. The stock should see targets of Rs 1560 & Rs 1600 going forward.

Ashis Biswas, Head of Technical Research at CapitalVia Global Research says that technically, with the breakout above the Rs 1400 level, the stock is set to gain momentum. Ashis suggests the stock to maintain its medium-term uptrend. He said that the stock should be bought with stop-loss of Rs 1304 and target of Rs 1710 
 
Ashis said he foresees a flat to negative sequential profit growth for Infosys. He expects 2% - 4% (QoQ) increase in revenue, Growth in dollar revenues, and constant currency (CC) terms is expected to be in the range of 3% - 5% sequentially.
 
He said that Infosys is expanding its lead over the competition in handling clients' cloud journeys and assisting in big deal wins. Infosys enjoys a differentiator in cloud migration roadmaps and managing data, processes, and applications in the cloud. IT services can gain value from promoting seamless integrations while retaining hybrid cloud models after the cloud migration process is completed. Connected systems on the cloud will produce massive amounts of data, and data analytics and AI-driven automation will be the following big growth engines.
 
Ashis says that that the cloud, cybersecurity market, and data analytics drive Infy's digital portfolio to rise at a 30% annual pace in FY21. Digital revenue now accounts for half of total revenue, and it will continue to expand rapidly at the cost of core legacy revenue. He expects the digital business will expand and generate higher margins than the company's average of 24%.