Infosys Q1 Results: Brokerages maintain mixed stance on IT major's stock despite guidance raise; share drops 2%— What should investors do?

Infosys share price: Shares of Infosys dropped around two per cent in Monday's intraday trade after IT major Infosys' net profit fell short of street's expectations of 5.5-9.5 per cent growth in the quarter ended June 2022. Sequentially, the profit declined 5.7 per cent from Rs 5,686 crore in the January-March quarter. 

As India's second-largest IT services firm Infosys on Sunday reported a lower-than-estimated 3.2 per cent rise in June quarter net profit amid escalating costs, the brokerage houses remained divided on the IT counter.  

They believed that the raise in revenue guidance was comforting, but pressure on margin remains a concern.  

Brokerages on Infosys

As per brokerage JM Financial, Infosys 1QFY23 earnings report suggests strong revenue growth with Infosys leading amongst the Tier I techs on growth. It, however, observed that margins disappointed relative to expectations with a 150-bps sequential drop.  

The brokerage maintained a buy call with target price of Rs 1720 per share.  

As Infosys surprised by raising its full-year revenue growth outlook to 14-16 per cent citing strong demand and robust deal pipeline, the brokerage house said the company continues to suggest strong pipeline (notwithstanding the macro worsening) and expects margins to improve through the course of FY23. 

Motilal Oswal too maintained a buy call, saying,"We would revisit our estimates post the earnings call. Commentaries on the near-term outlook, verticals, and margin would be keenly watched. We maintain our Buy rating on the stock." 

Global brokerage firm CLSA said a strong headcount addition and an unexpected rise in FY23 revenue growth guidance are reassuring in the medium term. It maintained a 'buy' with a target price of Rs 1750. However, the brokerage house agreed that Q1FY 23 margin was a tad below the estimates, and the company may face a healthy demand momentum and cost challenges. 

Morgan Stanley maintained an overweight rating and a target price of Rs 1535.  

It said growth performance was solid, but the margin came in significantly below the estimates. "The raised revenue guidance is comforting but not enough to offset weak margin outlook & potential estimate downgrades," it said.    

It expects the stock to remain under pressure in the short term.   

Bank of America (BoFA) Securities maintained a neutral rating with a target price of Rs 1600, while, JP Morgan gave an overweight rating for a target price of Rs 1700.  

Meanwhile, shares of Infosys were trading with half per cent cut to Rs 1499.20 a share on the BSE around 12 pm on Monday. It fell 1.96% to trade on the day's low of Rs 1478.35 per share. 

Earlier, Infosys on Sunday reported a lower-than-estimated 3.2 per cent rise in June quarter net profit amid escalating costs, but surprised by raising its full-year revenue growth outlook to 14-16 per cent citing strong demand and robust deal pipeline. 

Net profit of Rs 5,360 crore, or Rs 12.78 a share, compared with Rs 5,195 crore, or Rs 12.24 per share, in the same period a year back, according to the company's regulatory filing. Sequentially, the profit declined 5.7 per cent from Rs 5,686 crore in January-March quarter. 

While the net profit fell short of street expectations of 5.5-9.5 per cent growth, Infosys surprised investors by raising its revenue growth guidance to 14-16 per cent from 13-15 per cent for the fiscal year ending March 2023. 

What should investors do? 

Infosys reported strong 5.5% qoq CC revenue growth led by volume growth and market share gains, while margins missed our estimates owing to higher than usual wage revision and investment in talent., said Ashis Dash- IT Analyst, Sharekhan by BNP Paribas. 

"We believe Infosys is well-equipped to maintain its growth leadership among the large peers in the medium term given a portfolio well-aligned to growth areas and strong execution. Infosys remains our top picks in large cap space," he said.