Infosys can hit Rs 1,700, charts hint; how brokerages decode the Q2 nos

Shares of Infosys surged nearly 5 per cent on Friday, snapping its three-day losing streak after the company reported a 11 per cent YoY growth in net profit in the second quarter ended September 2022, beating street estimates. The company also announced its fourth share buyback offer worth Rs 9,300 crore, at a price of Rs 1,850 per share. READ MORE

Here's how brokerages have decoded the numbers.

Jefferies

We raise our FY23-25 earnings per share (EPS) estimates by 1-2 per cent to factor the results and expect FY22-24 EPS CAGR of 12 per cent. Infosys' strong deal bookings and consistent execution provide comfort amidst an uncertain macro.  While valuations at 23x are still at a premium to 10-year average levels of 19x, we believe it is justified given the superior growth outlook. The Rs 9,300 crore buyback a maximum price of Rs 1,850/share should support the price in the near-term. We maintain Buy with a price target of Rs 1,710, based on 24x PE.

Nomura

While the pipeline is high and robust, clients remain cautious. The second half of a fiscal traditionally has been softer than the first from revenue growth point of view for Infosys, and this year there will be usual furloughs in the third quarter (Q3-FY23). Infosys should deliver revenue at the top-end of its guidance and expect 12.4 per cent USD revenue growth in FY23. We expect Infosys' growth outperformance over TCS to continue in FY23-24. The stock trades at around 20x FY24 (forecasted) EPS. We modestly change our FY23-24F EPS by 0-2 per cent to factor in slightly better EBIT margin and raise our target price by around 2 per cent to Rs 1,640.

Elara Capital

The management indicated a few pockets of slow-down such as mortgage lending in BFSI, parts of retail, hi-tech and telecom. These are seeing slowdown in discretionary spending and delayed deal signings/decision making. There is a shift from transformation-led deals to cost take-outs (the latter forms a large proportion of deal pipeline). We revise FY24E-25E EPS estimate 2-3% on sharp INR depreciation. We maintain Accumulate with a revised target price of Rs 1,520 (Rs 1,580 earlier), on 21.3x one-year forward P/E (with a five-year average), down from 23.5x on subdued growth, going forward.

Motilal Oswal Securities

We were positively surprised by Infosys' margin performance, as that was the key concern among investors, given the supply-related headwinds. Its H2-FY23 guidance implies weak growth over the next two quarters, which was within our expected range and should not alter the business opportunity.

We factor in 9.6% revenue CAGR over FY22-24, despite cross-currency headwinds and factor in a margin of 21.1% / 21.3% in FY23/FY24, leading to 11% PAT CAGR over FY22-24. We have kept our FY23/FY24 EPS estimate broadly flat after the Q2-FY23 result and view the company as a beneficiary of an acceleration in IT spends, given its capabilities around Cloud and Digital transformation. We value the stock at 25x FY24E EPS. Reiterate our Buy rating with a target price of Rs 1,630. 

IDBI Capital

Infosys will see healthy growth led by cost take out opportunities and large deal wins. However, certain pockets of weakness in retail, emerging concern in Hi Tech and communication will dent revenues in the long run. Hence, we have revised revenues downwards by 1.4% and 1.8% for FY23E and FY24E. The buyback of Rs 9,300 crore is a key positive for the stock in the near-term. However, considering the macro situation and rising interest rates (leading to contraction of multiple), we remain cautious on the stock and maintain Hold rating with a target price of Rs 1,530 (22x FY24E EPS).

Technical outlook 

Infosys Ltd (INFY)

Likely target: Rs 1,700

Upside potential: 13.33%

After a steep gap-down in April 2022 that ruined the 200-day moving average (DMA) cushion on the daily chart, shares of Infosys lost the upside grip and entered into a bearish zone. The stock, thereafter, witnessed a vertical decline as the sentiment turned cautious. The 200-DMA is currently set at Rs 1,596, which the stock has failed to conquer since then. 

However, over a course of time, Infosys has seen formation of a positive divergence of the Relative Strength Index (RSI). The stock did make fresh lows falling under the July trough, while the RSI held ground above their previous readings. Thus, if the Infosys stock manages to overturn Rs 1,500 level, its immediate hurdle, the breakout could shift sentiment to a bullish scenario, pushing bulls to strike the 200-DMA wall. 

Further, if the Moving Average Convergence Divergence (MACD) too succeeds in sticking its neck up over the 200-DMA, the positive trend could trigger a fresh rally to the gap-down high of Rs 1,700 mark, realizing over 13 per cent gains.

For now, the bulls have regained some control and the stock seems poised to resume an upward march. The support for the stock exists at Rs 1,400, which needs to be held decisively. CLICK HERE FOR THE CHART