Motilal, JM, Religare, and Three Other Brokerages Suggest BUYING ON Infosys, Rs 1,738 TP; Dividend Payout Soon, Rs 28/Sh

The price of an Infosys share got off to a great start this week’s trading session on Monday, rising about 2% to Rs 1,432.75 a share. The mixed Q4 profit results from Infosys, which nonetheless fell far short of management expectations, spurred a rise in the IT stock. American Depositary Receipts (ADR) for Infosys are also available.

Six brokerages have suggested purchasing Infosys, with the highest target price of Rs 1,750.

On April 22, Infosys’ shares closed 1.7% higher on the NSE at Rs 1,434.50 per share. The 52-week high and low of the stock are, respectively, Rs 1,733 and Rs 1,215 per share.

Infosys plans to pay out dividends to investors in the future. For the fiscal year that concluded on March 31, 2024, Infosys proposed a final dividend of Rs 20 per equity share in addition to a special dividend of Rs 8 per equity share.

May 31, 2024, is the record date for the Annual General Meeting and the final and special dividend payments. On July 1, 2024, the dividend will be disbursed.

In the meantime, Infosys reported a consolidated net profit of Rs 7,975 crore in Q4FY24, rise of 30% YoY and 30.5% QoQ, before minority interest. On the income front, however, consolidated revenue of Rs 37,923 crore was down 2.3% in the previous quarter but up slightly by 1.3% year over year. Revenue fell 2.2% quarter over quarter and was unchanged year over year when measured in constant currency.

Infosys Goal Price: Emkay Worldwide Regarding Infosys:
According to management, discretionary expenditure is still low, as it was in H2FY24. Infosys missed its implied Q4 projection even after cutting its revenue growth target through FY24, which raises questions about the reliability of growth.

Building on the Q4 shortfall, lower guidance, and higher ETR, we reduce FY25–26E EPS by 6–6.5%. A persistent lack of performance is expected to hurt the shares, yet the value (~5% FCF yield) is not high. We maintain our buy recommendation, with a target price of Rs 1,750 based on 25 times the March-May earnings per share.

Brokerage Religare Regarding Infosys: The company’s performance fell short of our projections but nevertheless fell well within management’s forecast. We anticipate that overall FY25 will be stronger than FY24, but the good effect on revenue growth may be delayed by 1-2 quarters as customers are still hesitant to sign new discretionary transactions. Demand for its automation technologies, as well as for its Gen AI & Cloud, is anticipated to fuel the expansion.

Additionally, they are still focused on optimization and increased usage, both of which will help boost profits. Financially speaking, we have taken management advice for FY25 into account, therefore, we anticipate sales and EBIT to rise by 3.5% and 6.1% CAGR during FY24–26E. We are sticking with our Buy recommendation and Rs 1,738 as our target price.

ICICI Direct Regarding Infosys: We think that potential for cost reduction and vendor consolidation, together with the acceleration of previously won business, would provide chances for revenue growth in FY25, although more slowly. In terms of dollars, we predict that the company’s sales will increase by 3.4% and 9.5% in FY25E and FY26E, respectively. Therefore, we anticipate revenue to expand at a CAGR of 7.2% between FY24 and FY26E, as opposed to a CAGR of 9.5% in dollar sales between FY19 and FY24.

Since Infy is positioned to win cost optimization and vendor consolidation transactions until discretionary demand heats up, we think it will continue to win significant wins. Additionally, we think that the business’s margin will increase in FY25 despite very moderate sales growth because of the margin levers the company has used and the lack of one-off events that happened in FY24. In FY25E & FY26E, we anticipate margins to rise by 40 bps & 50 bps.

By FY25’s conclusion, discretionary demand should have recovered, which may, in our opinion, significantly boost Infy’s growth. We rate Infy as BUY and value it at ₹ 1,650, or 23 times P/E based on FY26E EPS.

Motilal Oswal Regarding Infosys: Infosys revenue growth prediction for FY25 was far lower than what we had anticipated, but contract wins could bolster the company’s medium-term growth outlook. Although it hasn’t changed its margin estimate, it still sees attractive medium-term gain potential.

We anticipate revenue growth in FY25 to be 2.5% YoY CC, or close to the top end of the guideline range.

We anticipate that INFO will profit greatly from the growth in IT expenditure in the medium run, notwithstanding short-term difficulty. We have updated our expectations, and the stock is now trading at 19x FY26E EPS. Based on our valuation of 22x FY26E EPS, the stock has a TP of INR1,650.

JM Financial On Infosys: This is based on two things. First, a growth projection that is heavily weighted toward completion of transactions. Two, even with the highest end of projection, it still only represents c.6% of FY24’s net new TCV, or around USD 550 million in additional sales in FY25. As a result, there is already a big enough buffer for optional run-offs.

A smaller range also represents management’s increased confidence in the advice symbolically. As we construct a 2%/6.5% organic revenue growth rate for FY25/26E, we include them into our projections. Our EPS forecasts are lowered by our already 7-8% below Street results and improved cash accrual limit. Even though we don’t foresee a quick recovery in demand, we believe that a reset in expectations should prevent further downgrades.

The stock is still valued by us at 23 times EPS, which is consistent with its 5-year median. We alter the TP from INR 1,570 to BUY after upgrading from INFO. Any post-result corrections need to be applied cumulatively.

Prabhudas Lilladher Regarding Infosys: We think that the business’s considerable reliance on discretionary spending is impeding its near-term growth and creating execution problems. Once again, the project’s rescoping and discussions have resulted in a hasty response to its implementations and deliverables. The long-term narrative is still intact, but we think the current macroenvironment is not supportive to its service mix, which might result in short-term leakages.

For FY25e and FY26e, respectively, we are factoring in revenue growth of 2% and 7% YoY CC with margin improvements of 30bps and 50bps. We project a 4.3%/5.8% CAGR in sales and profits between FY24 and FY26e. With a target price of INR 1,375, we are assigning a P/E of 21x to FY26e, whereas the company is now trading at 22x FY26e. That leads me to believe that Infosys has coverage with a “HOLD” rating.