Infosys strong TCV, deal wins in Q3 lend comfort amid macro risks: Analysts

Infosys Q3 review: The company is likely to benefit from vendor consolidation opportunities, gain market share and see margin expansion going ahead, say analysts

IT giant Infosys put up a resilient performance in the seasonally weak December quarter of 2022-2023 (Q3 of FY23) delivering both revenue and profit beat. 

 

As against Business Standard’s average revenue estimate of Rs 37,838 crore and profit estimate of Rs 6,470 crore, the company posted revenue and profit of Rs 38,318 crore and Rs 6,586 crore, respectively, during the quarter.

 

The firm’s quarterly flat operating margins at 21.5 per cent, however, were below street expectations as lower subcontracting costs were offset by higher passthrough costs and overheads.

 

Among the key positives, the company raised the FY23 growth guidance to 16-16.5 per cent from 15-16 per cent earlier. Its total contract value (TCV) at $3.3 billion was the highest in 8 quarters. 

 

“Uncertain global macro environment could restrict material outperformance in near to medium term, but the company’s long term growth outlook remains intact”, said Sanjeev Hota, Head of Research, Sharekhan. 
 

 

 

Here’s what other brokerages make of Infosys Q3 results: 

 

Jefferies | Maintain Buy | Target Price (TP): Rs 1,770

 

Despite healthy deal wins, Infosys' upgraded growth guidance implies a soft Q4 with sequential growth of -1.3 per cent to 0.4 per cent in constant currency (cc). Slowed net hiring, which was the lowest in 9 quarters, also reflects rising caution. Though, its strong deal bookings and consistent execution provide comfort in an uncertain macro. We raise our FY23 cc revenue growth estimate by 100 basis points (bps) and FY23-25 EPS estimates by 1-2 per cent to factor the beat.

 

IDBI Capital | Upgrade to Buy | TP: Rs 1,715 

 

The company will be a key beneficiary of vendor consolidation opportunities of $115 billion over the next 2.5 years. Morever, healthy large deal wins and pipeline make us believe that it will surpass its FY23 guidance and will register a 10.6 per cent CAGR revenue growth over FY22-25. 

 

PhillipCapital | Maintain Buy | TP: Rs 1,960

 

Robust TCV and pipeline commentary gives visibility for strong growth in FY24 even in a challenging macro environment. FY23 margins will be closer to the lower end of the guidance of 21-22 per cent, which remains achievable. Several levers like utilization, pyramid optimization and pricing will likely lead to a 100 bps margin expansion in FY24. Remain positive on the stock. 

 

Kotak Institutional Equities | Maintain Buy | TP: Rs 1,775

 

Many verticals are slowing down in accordance with our view of growth moderation in FY24. Though Infosys’ strength in managing both digital transformation and cost takeout will drive growth leadership. TCV wins are trending up, but this does not provide enough visibility for the firm's sustained growth leadership. 

 

Motilal Oswal | Maintain Buy | TP: Rs 1,790

 

Strong TCV despite pressure on end-demand was a positive surprise. Strong vendor consolidation deals and cost optimization projects continue to help Infosys gain market share. Last 12 months-large deal TCV of $10 bn and growth guidance upgrade should adequately cushion the near-term headwinds from weak macro and assuage growth concerns.