Infosys disappoints Street. Find out what brokerages feel about the stock after Q4

The Infosys share price plunges nearly 12 percent in the early trade on April 17 after the company came out with its March quarter earnings last week.

It has touched a 52-week low of Rs 1,223 and was quoting at Rs 1,227.60, down Rs 161.00, or 11.59 percent on the BSE.

Infosys on April 13 reported a 7.8 percent on-year rise in its consolidated net profit at Rs 6,128 crore for the quarter ended March 2023. India’s second-largest information technology firm posted a profit of Rs 6,586 crore in the December 2022 quarter.

Consolidated revenue for Q4FY23 came in at Rs 37,441 crore, up 16 percent against Rs 32,276 crore in the corresponding quarter of the previous fiscal. Revenue stood at Rs 38,318 crore.

The net profit clocked was 6.5 percent lower as compared to the CNBC TV-18 poll estimate of Rs 6,553 crore, whereas, the consolidated revenue was 3.6 percent lower as against the estimate of Rs 38,830 crore.

Operating profit for Infosys came in at Rs 7,877 crore, up 13 percent compared to Rs 6,956 reported in the March 2022 quarter. In the previous quarter, operating profit stood at Rs 8,242 crore. Operating margin contracted 0.5 percent yearly as well as sequentially to 21 percent.

At constant currency (CC), the company’s revenue grew 8.8 percent on-year during the fourth quarter, and by 15.4 percent during the entire fiscal year.

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Here is what brokerages have to say about stock and the company post March quarter earnings:

Nomura

Nomura has downgraded Infosys from a ‘buy’ to a ‘neutral’ rating, and also cut its target price from Rs 1,660 to Rs 1,290 per share.

The weak guidance for FY24 and growth differential with TCS are set to narrow.

Nomura also believes that the guidance and deal wins indicate a weak outlook for the company. Additionally, broking house has cut its FY24-25 EPS estimates for Infosys by 8-9 percent.

Emkay

Emkay has maintained a ‘buy’ rating for Infosys, but has cut its target price from Rs 1,700 to Rs 1,620 per share.

The brokerage house has also cut its EPS estimates for FY24/25 by 4.4-6.3 percent due to disappointing Q4 results. Despite this, Emkay believes that Infosys is well-positioned to capture growth opportunities in the digital transformation space. However, the asking rate at the upper end of guidance appears to be demanding.

Ambit

Ambit has given Infosys a ‘sell’ rating and has cut its target price from Rs 1,505 to Rs 1,340 per share. Growth, margin, and guidance being materially below broking firm expectations. The US verticals have seen declines, but Ambit believes that the FY24 guidance of 4-7 percent growth implies a 1.7-2.9 percent CQGR over Q1-Q4.

The broking house has moderated its CC (constant currency) revenue growth to 5/7.3 percent in FY24/25 from 7.1/7.7 percent. Additionally, Ambit has cut its FY25 EPS estimates by 5 percent.

DAM Capital

DAM Capital has downgraded Infosys to ‘neutral’ and reduced the target price from Rs 1,594 to Rs 1,390 per share. The report has also lowered the earnings per share (EPS) estimates for FY24 and FY25 by 4.7 percent and 6 percent, respectively.

Broking firm expect company to deliver a revenue compound annual growth rate (CAGR) of 7.9 percent over FY23-25 and expect to deliver 70 basis points increase in margin over the same period. Additionally, the report values the company at 19 times FY25 EPS, with a discount rate of 20 percent to Tata Consultancy Services (TCS).

Motilal Oswal

Motilal Oswal has maintained a ‘buy’ rating on Infosys, while reduces the target price to Rs 1,520 per share. The report expects FY24 EBIT margin at 21.1 percent, which is flat year-on-year. And expect FY24 profit growth in a single-digit at 9.3 percent YoY for FY24. It has lowered the FY24-FY25 earnings per share (EPS) by 4 percent and 5 percent.

JPMorgan

JPMorgan has downgraded Infosys to an ‘underweight’ rating and has cut its target price from 1,500 to 1,200 per share. Broking house feels that uninspiring commentary and ambitious guidance post sharp miss, triggering a reappraisal. As a result, it has cut revenue by 4-5 percent and margin by 70 bps, driving 8-9 percent EPS cuts over FY24/25.

JPMorgan also notes that the FY24 guidance of 4-7 percent CC revenue growth and 20-22 percent margin is below their consensus. The guidance bakes in an ambitious ask rate of 1.6-2.7 percent CQGR, which appears uncharacteristically H2FY24 heavy. The company is prone to subsequent downgrades.

CLSA

CLSA has downgraded Infosys to an ‘outperform’ rating from ‘buy’ and has cut its target price from RS 1,800 to Rs 1,550 per share. CLSA has cited the weak Q4FY23 and disappointing FY24 guidance. The larger disappointment was the weak margin outlook, as the FY24 EBIT margin guidance of 20-22 percent versus 21-23 percent was expected.

The FY24 EBIT margin guidance has driven a 6 percent/5 percent cut to FY24/FY25 EPS estimates. Additionally, the management commentary was uninspiring, which was an additional dampener.

Citi

Citi has downgraded Infosys to a ‘neutral’ rating and has cut its target price from Rs 1,675 to Rs 1,400 per share. Citi expects weak Q4 and uncertain macro conditions to weigh on multiples, and has revised its FY24/FY25 EPS estimates lower by 4-5 percent while also lowering its target multiple to 22x.

Citi notes that the pace of change in sentiment on discretionary spending has surprised, and this will have medium-term implications for smaller companies. The communication sector appears particularly weak in both TCS and Infosys. Tech Mahindra remains the most exposed.

UBS

UBS has given Infosys a ‘Neutral’ rating and has cut its target price to RS 1,570 per share. UBS believes that Infosys’ -3.2 percent QoQ CC revenue growth was significantly lower than expectations. While QoQ decline in operating margin, isn’t bad given the sharp decline in revenue and utilisation.

It was a weak performance on all counts, and the guidance for FY24 did not provide any help either, as a result, UBS anticipates a sharp negative reaction for the stock.

BoFA Securities

BoFA Securities has given Infosys a ‘neutral’ rating and has cut its target price to Rs 1,390 per share. The brokerage house cut its FY24/25 EPS estimates by 2 percent/3 percent.

The Q4 was an uncharacteristically large under-shoot. The dip in margin and under-shoot to the FY24 revenue and margin guidance follows from the topline miss in the quarter.

Morgan Stanley

The broking house has been given an ‘overweight’ rating to the stock and slashed the target price to Rs 1,475 per share from Rs 1,625 per share. The report notes a negative surprise in Q4FY23 results and weak order book, which implies a less conservative revenue outlook that is a key concern.

The report also highlights that the lowering of the lower band of margin outlook for FY24 is a key concern for the company. The report expects a potential correction in the stock in line with the ADR reaction of down 9-10 percent.

However, the report notes that the QoQ growth rate performance is expected to be better for Infosys than TCS in Q1FY24. The report also expects the P/E discount to normalize through the year.

Kotak Institutional Equities

The research firm has given a ‘buy’ rating for the stock, but the target price has been cut to Rs 1,470 per share from Rs 1,700 per share. The report notes a cut in revenue growth and margin estimates, leading to a 6-7 percent cut to FY24-25 EPS estimates.

The report also mentions that Infosys’ QoQ revenue decline due to aggressive cuts to discretionary programs. The general slowdown in tech spends on account of macro pressure and uncertainty and one-time revenue impact of nearly 1 percent from project cancellations.

The report expects muted Q1FY24 performance, but growth recovery in H2FY24, led by large/mega deal revenue.

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