Brokerage firm CLSA has given a 'buy' rating for Infosys, stating that the company's $1.2 billion proposed share buyback through open market purchase should lend downside support to the stock price.

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CLSA has a price target of Rs 1,660 for the stock.

The brokerage firm notes that the consolidated revenue growth of 2.8 percent quarter-on-quarter in the fourth quarter of 2021 was below the estimates of 3.1 to 3.7 percent. However, Infosys indicated the underlying volume growth was a solid 4.6 percent whose translation into revenue growth was diluted by offshore shift (90 basis points quarter-on-quarter) and lower pass-through revenue.

As such, earnings before interest and tax (Ebit) margin, which was 24.5 percent, down 94 basis points quarter-on-quarter, was in line despite higher-than-expected subcontractor costs. Profit After Tax (PAT), at Rs 5,080 crore (up 17.5 percent year-on-year), was pulled down by lower yield and hedge gains versus our estimates.

CLSA mentions that Infosys indicated “steady replenishment of deal pipeline with both medium and large size deals.” The IT major has reported 23 large-deal wins with a combined US$2.1 billion total contract value (up 19 percent year-on-year) in the fourth quarter of 2021.

The Infosys management also said the deal pipeline has replenished, normalized for the third quarter of the 2021 Daimler AG mega-deal, and should give good traction in the coming quarters. The fiscal year 2022 constant-currency revenue growth guidance at 12-14 percent was as expected.

The company has highlighted that the demand outlook is "one of the strongest" and could hold longer term even though quantitative guidance is only for the fiscal year 2022. Earnings before interest and tax (Ebit) margin guidance too at 22-24 percent was in line with expectations. Infosys indicated a conservative stance on margin outlook given supply-side pressures and currency volatility.

CLSA also maintains the 12 percent fiscal year 2021-24 revenue Compound Annual Growth Rate (CAGR) estimates. The brokerage notes say that the ramp-up in the Daimler deal, expected in the second quarter of the fiscal year 2022, could add an incremental 3 percent to the fiscal year 2022 growth rate.

Brokerage firm Macquarie has given an ‘outperform' rating for Infosys, stating that the company's fourth-quarter results had a beat at the margin but it missed at the revenue level. Macquarie has a price target of Rs1,680 for the stock.

The brokerage notes say that the guidance for the fiscal year 2022 is in line with the consensus estimates. The company's strong deal closures in the fiscal year 2021 set the stage for its robust double-digit growth in the fiscal year 2022. Also, the healthy mix of buyback & dividend gives underpin returns of 85 percent FCF to the shareholders.

Goldman Sachs has also given a ‘Buy' rating for Infosys, stating that any correction in the stock price would present an even better buying opportunity. Goldman Sachs has a price target of Rs1,699 for the stock.

GS maintains guidance for the fiscal year 2022 constant currency revenue growth at 16.5 percent year-on-year and a margin of 24 percent. The firm also sees Infosys executing strongly in the current technology up-cycle.

Credit Suisse has given an ‘outperform' rating for Infosys. It says the company's current quarter results were unimpressive and now the fiscal year 2022 guidance appears conservative. Credit Suisse has a price target of Rs1,725 for the stock. The firm is positive on the IT major given the industry-leading growth potential in the medium term.

JPMorgan has given an ‘Overweight ' rating for Infosys and added that the fourth quarter was mixed with a miss on headline revenues. JPMorgan has a price target of Rs1,700 for the stock.

The notes by JPMorgan say the fiscal year 2022 guidance is largely in line with the expectations. It expects the stock to be supported by the increase in dividends and buyback. Infosys is expected to outpace peers in the fiscal year 2022.

First Published:Apr 15, 2021 11:31 AM IST