Motilal Oswal has given Buy recommendation for Infosys recommended buy rating on the stock with a target price of Rs 1960 in its research re with a target price of Rs. 1960 in its research report issued on Oct 14, 2021

Motilal Oswal’s research report on Infosys

INFO reported a growth of 6.3% QoQ CC, ahead of our estimate of 5.7%, on the back of a broad based performance. Large deal TCV of USD2.15b was a tad soft (net new at 37%). However, the management indicated good traction in medium and small size deals, and reiterated that the pipeline remains strong on robust demand. EBIT margin dipped 10bp QoQ to 23.6%, above our estimate of 22.3%, despite the impact of higher subcontracting expenses and wage hike in 2QFY22. Utilization (+70bp QoQ) and offshore mix (+50bp) remains stretched, despite strong hiring (11.7k, up 4.4%) in 2QFY22. We were positively surprised by the increase in its FY22 USD revenue growth guidance to 16.5-17.5% YoY CC (from 14-16%), an increase of 200bp at the mid-point v/s our expectation of a 100bp rise. We continue to see scope for a beat and a raise over the next two quarters as INFO benefits from a better large deal focus and demand tailwind.

Outlook

As INFO has outperformed TCS in FY21 and in 1HFY22, we expect no valuation divergence between the two companies. Based on our revised estimates, the stock is currently trading at 26x FY23E EPS. We value the stock at 30x FY23E EPS, implying a TP of INR1,960.

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