Global brokerages mixed on Infosys after muted Q1 performance

On Sunday, Infosys reported a 3.17 per cent rise in net profit to Rs 5,360 crore in the June quarter compared with Rs 5,195 crore in the same quarter last year. It missed Street estimates as an ET NOW poll of analysts had anticipated the profit figure at Rs 5,550 crore.

India’s second largest IT company reported a consolidated revenue of Rs 34,470 crore in Q1, which was higher than the analyst estimate of Rs 34,150 crore. On a YoY basis, the revenue jumped 23.6 per cent.

Infosys had upped its revenue guidance during the earnings call after the latest earnings, which majorly has failed to boost morale of the brokerages at large as their target price suggest an upside potential of 2-16 per cent in the stock.

Morgan Stanley remains overweight on the stocks with a target price of Rs 1,535 on the stock, lowest among the three included in this report. “Infosys’ growth performance was solid but margin was lower,” it said.

According to Morgan Stanley, weak margin outlook would offset the growth guidance uptick. Also, the raised revenue guidance is comforting but not enough. “We expect the stock to remain under pressure in the near term.”

Infosys’ revenue or turnover stood at Rs 34,470 crore in the first quarter of current fiscal, which was up 23.6 per cent compared to Rs 27,896 crore a year ago. Sequentially, the revenue was up 6.8 per cent from Rs 32,276 crore logged in January-March period.

Another brokerage, BofA Securities has kept its ‘neutral’ rating on the stock with a target price of Rs 1,600 as it has raised its FY23 revenue outlook but EBIT percentage steered to low-end.

“Numbers beat on revenue expectations but were a miss on a profitability front,” it added. “Growth was broad based with most large vertices growing at 7-8 per cent.”

On the other hand, CLSA has maintained a buy rating on the counter with a target price of Rs 1,750 on the counter amid the healthy demand momentum and the cost challenges appears to be transient.

“The IT player reported strong 5.5 per cent CC revenue growth in Q1FY23,” it added. “Large deal wins were modest but new business share improved. All negatives have been largely priced into the ongoing underperformance of the company.”

The US market – the largest and the most lucrative pie for the export-led Indian IT sector – grew at 18.4 per cent and Europe grew very strongly at 33.2 per cent. Infosys’ large deals stood at USD 1.7 billion in Q1, which consisted of 19 large deals.

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