Infosys Q1FY23 results: Here's how brokerages have interpreted the numbers

A mixed set of numbers by IT major Infosys in their June quarter results 2022 (Q1FY23) saw the stock slump mildly on BSE in Monday’s trade. Though revenue growth of 23.6 per cent year-on year (YoY) to Rs 34,470 beat street estimates, margin performance and net profit growth were a disappointment, said analysts.

In constant currency (CC) terms, Infosys clocked 5.5 per cent revenue growth in the recently concluded quarter. However, revenue growth for peers like HCL Technologies, Tata Consultancy Services (TCS), and Wipro came in at 2.7 per cent, 3.5 per cent, and 2.1 per cent, respectively.

However, higher retention costs and cross-currency headwinds dented margins, which came lower at 20.1 per cent in Q1FY23 compared to 21.5 per cent in Q4FY22.

Going ahead, brokerages believe that the margin headwinds like travel costs, wage inflation will continue to persist in Q2FY23 as well. “We believe at least 3-5 per cent of earnings per share (EPS) cut in consensus estimates due to reduction in margin forecasts for FY23 and growth forecasts for FY24,” ICICI Securities said in a post result update.

Here’s how brokerages have interpreted Infosys Q1FY23 results:

Jefferies | Buy | Target price: Rs 1,506

The 150 basis point (bps) YoY decline in margins to 20.1 per cent – a new low - disappointed and led to an earnings miss. However, analysts remain optimistic of management’s commentary on a strong deal pipeline despite large bookings being down 34 per cent YoY – the lowest in nine quarters.

JPMorgan | Overweight | TP: Rs 1,700

With an ‘overweight’ rating on the counter, the brokerage firm believes Infosys could see a sharp earnings cut going ahead despite silver lining in revenue growth guidance for FY23. Supply challenges could drive margin guidance to the lower end of the guided band of 21 – 23 per cent.

JM Financial | Buy | TP: Rs 1,720

We cut FY22-25E by 2.4-4.7 per cent driven by lower margins, even as we appreciate the continuing trend of market share gains / growth leadership.

CLSA | Buy | TP: Rs 1,506

Analysts anticipate that the strong revenue growth guidance for FY23 and headcount addition reassures Infosys’ demand strength. They foresee demand momentum to remain healthy and cost challenges to be transient in nature.

Morgan Stanley | Overweight | TP: Rs 1,535

The stock is likely to remain under pressure in the near-term. Although the management raised revenue guidance for FY23, it is not enough to offset the weak margin outlook set at up to 23 per cent.

ICICI Securities | Hold | TP: Rs 1,506

The brokerage firm forecasts EBIT margin at 21 per cent and 22.5 per cent for FY23 and FY24, respectively. We continue to value the stock at 22x on FY24E EPS of Rs 65 to arrive at a fair value of Rs 1,434 (earlier: Rs 1,464). We forecast revenue growth of 13 per cent / 7.9 per cent YoY USD for FY23E / FY24E with an EPS CAGR of 11.4 per cent for FY22-FY24E.