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Infosys gains nearly 5% post Q3 results; should you invest?

Brokerages have either raised or maintained their price targets following Q3 outcome.

Last Updated: Jan 13, 2020, 03.59 PM IST
Axis Capital has raised the target price to Rs 820 from Rs 810 after rolling forward estimates but maintained add rating.
NEW DELHI: Shares of Infosys gained nearly 5 per cent in Monday’s session after the IT major on Friday posted better-than-expected performance for the three months ended December 2019.

Infosys reported a 23.49 per cent year-on-year (YoY) rise in profit at Rs 4,457 crore compared with Rs 3,609 crore in the corresponding quarter last year. The figure stood higher than ETNow poll estimate of Rs 4,204.50 crore.

The company raised FY20 constant currency revenue guidance to 10-10.5 per cent compared to 9-10 per cent earlier. The investigation into the recent whistle-blower allegations concluded with no evidence of wrong-doing found against the company, CEO and CFO, which analysts said is a relief.

Brokerages have either raised their price targets or maintained them on the stock following Q3 outcome.

Axis Capital has raised the target price to Rs 820 from Rs 810 after rolling forward estimates but maintained add rating.

“We believe that the clean chit for the management would clear the decks to bring the focus back on business. Moreover, we believe Infosys’ revenue growth performance would be superior to that of TCS. We see Infosys’ margin trajectory to improve gradually as the investment phase comes to an end, whereas TCS would continue to see margin pressure due to sustained pricing pressure on legacy,” said Axis Capital.

HDFC Securities is also positive on Infosys with a target price of Rs 850.

“Our positive outlook is based on (1) greater focus on large deals (56 per cent YoY in 9MFY20 TCV on S&M velocity, partnerships), (2) pricing lever in digital (highest digital growth in tier-1 IT), (3) completion of accelerated investment phase and multiple levers to keep margin steady, and (4) improving supply metrics (declining attrition, stable sub-contracting). We expect dollar revenue and EPS CAGR of 10 per cent and 12 per cent, respectively, over FY20-22E factoring dollar revenue growth at 9.6/9.8/9.8 per cent and EBIT at 21.6/21.9/22.1 per cent for FY20/21/22E. Risk-reward favourable with Infosys valuations at around 30 per cent discount (peak) to TCS,” the brokerage house said.

The shares of the company closed 4.76 per cent higher at 773.40 on BSE.
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