American depository receipts of Infosys (Infy ADR) slumped 9.34 per cent in the last two days after the company announced 'muted' fourth quarterly results on Wednesday post market hours. Infy ADR crashed from $22.57 to $20.46 on Nasdaq, as Infosys reported a weak Q4, partly impacted (both revenue & margin) by a client-related contractual provision.
Nevertheless, analysts are bullish on Infosys and advise investors add the stock on every decline. However, most of them lowered their FY23-24 EPS estimates by 3-4 per cent.
Lower profit estimates
"We think Infosys is relatively well placed; revenue guidance provides comfort, 400bp utilisation cushion created in past 6 months and one-off should reverse," said foreign brokerage firm Citi. "We lower our FY23-24 EPS estimates by 3-4 per cent and lower our target multiple to 32x (from 33x) given higher-than-anticipated softness in margins. Our new TP is ₹2,010. Near term, some stock weakness is likely; we would suggest to buy those dips for relative outperformance," it added.
According to Morgan Stanley, post a weaker-than-expected Q4 performance and negative surprise on FY2023 margin guidance, Street EPS estimates will come down. "We stay constructive on growth momentum and would view corrections as buying opportunities".
TCS vs Infy
Another foreign brokerage Jefferies said: "We lower our FY23-24 estimates by 3-6 per cent to factor this and expect Infosys to deliver 14 per cent EPS CAGR over FY22-24.
Infosys trades at 28x 1-year fwd PE - 10 per cent discount to TCS, despite having 2 per cent higher earnings growth outlook, Jefferies said, adding "While we expect the stock to correct post Q4 results, we note that since FY20, whenever Infosys trades at a 10 per cent discount to TCS, its stock has outperformed TCS by 10 per cent in the following 12 months".
Domestic brokerage Prabhudas Lilladher downgraded the stock to ‘Accumulate’ from ‘Buy’ with a revised price target of ₹1,899 (₹2,204), as it cuts EPS estimates by 10.6 per cent/8.2 per cent for FY23/24 led by about 100-130bps cut in EBIT margins, lower than expected exit revenue growth rate, and increase in risk free rate to 7.2 per cent (earlier: 6.8 per cent).
Motilal Oswal lowered our FY23/FY24 EPS estimate by 5 per cent on slower growth and margin pressure. "We view Infosys as a key beneficiary of an acceleration in IT spends, given its capabilities around Cloud and Digital transformation," it added.