Infosys hits over 10-month low; stock down 14% in a month

Shares of Infosys hit over 10-month low of Rs 1,511.55, down 3 per cent on the BSE in Wednesday’s intra-day trade. In the past one month, the stock of information technology (IT) major has declined 14 per cent after operating performance missed estimates in March quarter (Q4FY22). In comparison, the S&P BSE Sensex was down 9 per cent during the same period. The stock  traded at its lowest level since June 23, 2021.

In Q4FY22, Infosys had reported a weak set of numbers as earnings before interest and tax (EBIT) margin contracted by 190 basis points (bps) quarter-on-quarter (QoQ) to 21.6 per cent due to lower utilisation and higher visa costs. Meanwhile, the company's revenue in US dollar terms grew 0.7 per cent QoQ to $4,280 million, and was up 1.2 per cent QoQ in constant currency (CC) terms.

Moreover, Infosys' margin guidance of 21-23 per cent for FY23 is 100bp lower from its earlier guidance in FY22. Besides that, the management has guided for revenue growth of 13-15 per cent for FY23.

However, analysts at HDFC Securities remain confident on the company’s prospects of growth leadership within tier-1 IT. "A modest implied growth rate in digital services (relative to historical trends) will maintain Inofsys’ track record of overshooting the initial revenue guidance (13-15 per cent CC for FY23E)," rhe brokerage firm said.

Analysts also remain optimistic about the near-term margin trajectory as investments directed towards cloud offering and growth acceleration can benefit operating leverage.

On the contrary, analysts at Emkay Global Financial Services believe that salary hike, backfilling costs, investments in digital or cloud capabilities, lower utilization are potential headwinds for margin in FY23. "The company plans to partly offset margin headwinds incoming in FY23 by growth in revenue, led by operating leverage, value-based pricing, optimizing subcontracting costs, automation and cost rationalization programs," the brokerage firm said with a 'buy' rating on the stock, considering broad-based demand, steady market share gain and robust cash generation to act as tailwinds in FY23.