Infosys Ltd, India's second-largest IT services exporter (in terms of revenues), may have near term challenges that will drag the revenue growth momentum of the company. The management has guided low-single-digit growth in fiscal 2024, mainly because of macroeconomic uncertainties. The higher onsite expenses are also putting operating margins to be under pressure, said domestic brokerage house Axis Securities in its latest note.
The brokerage has suggested 'Sell' on the Infosys stock, with a target price of Rs 1,300, implying a downside of 11.5 percent from the current market levels. "We recommend a sell rating on the stock and assign a 20 times P/E (price-earnings) multiple to its FY25E earnings of Rs 63.7/share to arrive at a TP of Rs 1,300/share," it said.
Shares of Infosys Ltd were trading almost flat at Rs 1,471.80 apiece on the NSE during today's afternoon deals. The stock has gained 5.61 percent in the last one month. On a year-to-date basis, Infosys shares tumbled 3.43 percent and it fell 4.20 percent in the last one year.
Financial year 2022-23 have proven to be the year of volatility and uncertainty for demand across the world. Despite this uncertainty and volatility, Infosys performed well and demonstrated its resilient enegmaent with its clients as well as its commitment to customer-centricity amidst these challenging times, Axis Securities said.
The company posted industry-leading revenue growth of 15.4 percent in FY23. However, its operating margins remained under pressure for the second consecutive year as onsite expenses, subcontracting costs, and other expenses increased significantly during the year.
Given this uncertainty, the management of Infosys has provided sceptical guidance of revenue growth of 1 percent to 3 percent in Constant Currency terms in FY24. It also forecasts operating margins to hover in the range of 21 percent to 23 percent in FY24, which will be supported primarily by higher offshoring and a richer service mix.
Meanwhile, Kotak in a recent note, said that Infosys is still among the better-positioned companies in the current environment, given its strength in addressing both discretionary spending and cost take-out initiatives.
"We believe that the company will emerge as a net beneficiary of cost take-out and vendor-consolidation exercises," the brokerage noted.
Consensus Street estimates capture the underlying pessimism in demand for Infosys but not for others; either the Street is pessimistic on Infosys or more optimistic on others, Kotak said, maintaining a 'Buy' rating on the stock.
In terms of technicals, the 14-day relative strength index (RSI) stood at 66.9, indicating the counter is neither trading in the oversold zone nor the overbought zone. The stock has a one-year beta of 1.3, indicating very high- volatility.
The counter is trading higher than the 5 day, 20 day, 50 day, 100 day and 200 day moving averages.
First Published: Sept 11, 2023 3:27 PM IST
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