Infosys reported a healthy set of Q3FY21 numbers. Dollar revenues increased 5.3% QoQ vs. our estimate of 3.3% in constant currency terms. Once again in this quarter, the company has outperformed Tata Consultancy Service (TCS) in terms of revenue growth. Infosys also reported flat QoQ margins despite headwinds of large deal transition cost and higher sub con cost. In terms of guidance, the company has revised its FY21E revenues guidance upwards from 2-3% to 4.5-5% and operating margin guidance to 21-23% from 24-24.5%.
Valuation & Outlook
We expect Infosys to be a key beneficiary of multi-year growth in digital technology considering its digital prowess and its ability to provide an end to end solution. This, coupled with increase in outsourcing in the US and Europe, vendor consolidation opportunities, captive carve outs and cost takeout deals will further boost revenues. In addition, healthy deal wins are expected to help the company make a steady improvement in financials in coming quarters. Infosys has consistently outperformed TCS over the past few quarters and also narrowed the margin gap between the two companies. As a result, we expect the PE multiple discount between Infosys and TCS to narrow. Hence, we maintain our BUY rating on the stock with a revised target price of Rs. 1,610 (25x P/E on FY23E EPS) (previous target price was Rs. 1450).
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_Infosys_Q3FY21.pdf
Shares of INFOSYS LTD. was last trading in BSE at Rs.1370.6 as compared to the previous close of Rs. 1387.7. The total number of shares traded during the day was 2734302 in over 62933 trades.
The stock hit an intraday high of Rs. 1384.5 and intraday low of 1318.05. The net turnover during the day was Rs. 3730981293.