Infosys shares dip 6% on profit booking post March quarter results

Motilal Oswal Securities expects Infosys to be a key beneficiary of a recovery in IT spends in FY22E

Shares of Infosys were down 6 per cent at Rs 1,320 on the BSE in intra-day trade on Thursday on account of profit booking in the counter following the company's March quarter numbers.
 

The IT bellwether on Wednesday posted a 17.47 per cent year-on-year (YoY) growth in net profit at Rs 5,076 crore for the March quarter of the financial year 2020-21 (Q4FY21) as against Rs 4,321 crore posted in the same period last fiscal. Sequentially, however, the figure dipped by 2.32 per cent from Rs 5,197 crore posted in the December quarter of FY21. READ MORE

The company’s revenue during the March 2021 quarter (Q4FY21) grew by 2 per cent on a quarter-on-quarter (QoQ) basis in constant currency (CC) terms, lower than analysts' estimates, due to offshoring which resulted in a fall in the counter.

With today’s intra-day decline, the stock of the information technology (IT) giant has slipped 11 per cent from its all-time high level of Rs 1,480 touched on Monday, April 12. Prior to that, since March, Infosys has outperformed the market and rallied 15 per cent as compared to a 1 per cent rise in the S&P BSE Sensex till Friday, April 9.

At 09:30 am, Infosys was trading 4 per cent lower at Rs 1,347 on the BSE as against a 0.21 per cent rise in the S&P BSE Sensex.

In Q4FY21, Infosys’s growth in revenues was robust across verticals and geographies. The company’s digital revenues increased by 5.6 per cent QoQ and by 38.6 per cent year-on-year (YoY) and now accounts for 51.5 per cent of the overall revenues. In terms of deal pipeline, it increased 27.3 per cent YoY to $2.1 billion.

Further, despite wage hike, the company’s margins were healthy. In terms of guidance, the company expects FY22E revenues to grow in the range of 12-14 per cent and operating margin to be in the range of 22-24 per cent. Robust revenue guidance points at a strong demand environment.

According to ICICI Securities, improved demand environment, traction in large deals, increase in outsourcing in the US and Europe, vendor consolidation opportunities, captive carve outs and cost takeout deals are expected to drive company’s revenues in long terms.

In addition, healthy traction in digital revenues, revenue growth outpacing Tata Consultancy Services (TCS) over past twelve months and margin gap narrowing with TCS are other key positives. This coupled with healthy cash conversion, robust capital allocation policy and EPS accretive buyback prompt us to be positive on the stock, the brokerage firm said in a note.

“Q4FY21 saw some moderation from the industry-leading growth rates. We believe the company will show top quartile growth performance in FY22E on the back of its strong technical capabilities and ramp-up in deal wins in FY21.  For FY21, it delivered a strong margin. Some margin tailwinds are not sustainable and their benefits would partially wane out as travel comes back, and attrition and offshore ratio normalize,” analysts at Motilal Oswal Securities said.

We expect Infosys to be a key beneficiary of a recovery in IT spends in FY22E, the brokerage added. "Our relative preference for Infosys over TCS is premised on its headroom for increase growth potential, which was further reinforced by this result. As Infosys has outperformed TCS in FY21, we expect the valuation divergence to narrow, the brokerage firm said in results update," it further added.