Infosys share price rises 2.5% today, Know what Brokerages have to say about stock

Kotak Institutional Equities said that the constant currency sequential revenue growth of 3%, was led by ramp of large deals and strong bookings of earlier quarters. March is a seasonally weak quarter for Infosys. Kotak said 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 Kotak's view and will decline. Infosys stock price touched the levels of Rs 1400 today, the stock was 3rd top gainer on Nifty today. The stock witnessed good buying at the counter today. 

Kotak says in note that FY2022E revenue growth and EBIT margin will be influenced by the 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. 

Technical Analysis on Infosys:

Technical Analyst Nilesh Jain, who is Assistant Vice President (AVP), Equity Research Technical and Derivatives at Centrum Broking says that Infosys is in a secular uptrend and making a higher top and higher bottom formation on the weekly time frame. It also provided a breakout from its consolidation and now the upside is open for Rs 1460 levels. The support has shifted higher towards Rs 1360 levels.

Market Expert Rakesh Bansal said that Infosys has a support at Rs 1350 for target of Rs 1448.

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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

Sharekhan says that Infosys digital revenue has reported a 7.6% CQGR since Q1 FY18, and its contribution stood at 50.1% in Q3 FY21. As COVID-19 has acted as a catalyst in accelerating the demand for digital and cloud transformation across industries, Infosys launched Infosys Cobalt to help clients in building capabilities using the features across leading SaaS, IaaS, and PaaS platforms.

Sharekhan says that Infosys Management indicated that FY2022E growth would be driven by:

1)     higher spending on Cloud-related technologies by clients (to tap opportunities it launched Infosys Cobalt in August 2020)
2)      strong demand for cyber security, data analytics and enhancement of customer experience
3)     rising demand for core transformation
4)     continued strong deal wins ($12 billion in YTD FY2021 versus $9 billion in FY2020)
5)     higher pricing for certain new-age technologies (which negates pricing pressure in the legacy business)
6)     stronger deal pipeline even after a large deal wins over the last couple of quarters.

Sharekhan believes the pace of deal signings would remain strong (given strong participation in RFPs) in the coming quarters, as it has been reaping benefits from accelerated investments on enhancing capabilities, sales transformation initiatives, and increased focus on large deals over the past three years. During the quarter, Infosys has won a nearly $500 mn deal from Google to provide customer experience and engineering support for its products.

Sharekhan says that Infosys Management indicated that the company has better pricing for its digital portfolio, given its sharpening focus on value-based pricing. Though margins would be impacted from the increase in travel and facility expenses and higher selling and marketing in the coming quarters, these expenses may not return to pre-COVID level even after normalcy.