ICICI Direct published their research paper on Q4FY22 and year ended financial result of Infosys Ltd (check the result details here). Infosys generates >58% of revenues from digital technologies Dividend payout (>80%), margins (>20%) and RoCE (>31%), are the key positives.
The research suggests :
Q4FY22 Results: Infosys reported weak Q4 numbers.
- US$ revenues grew 0.7% QoQ to $4,280 million, up 1.2% QoQ in CC terms
- EBIT margins were down 190 bps QoQ to 21.6%
- The company declared a dividend of ₹ 31 per share for FY22
What should investors do? Infy’s share price has grown by ~4.3x over the past five years (from ~₹ 402 in April 2017 to ~₹ 1,748 levels in April 2022).
Target Price and Valuation: ICICI Direct values Infosys at ₹ 2,000 i.e. 28x P/E on FY24E EPS
Key triggers for future price performance:
- Differentiated digital and cloud capabilities to drive growth
- Growth remained broad-based and deal momentum robust, with digital transformation rapidly scaling across verticals and regions
- Infosys to post industry leading revenue growth (13.4% CAGR in FY22-24E)
- Double-digit return ratios, strong cash generation and healthy payout
Key takeaways of recent quarter & conference call highlights :
- Infosys reported 0.7% QoQ dollar revenue growth to US$4,280 million (mn) while it grew 18.5% YoY. In CC terms, it reported growth of 1.2% QoQ and 20.6% on a YoY basis
- For FY22, Infosys reported revenues of US$16.311 billion (bn), up 20.3% over FY21. For FY22, CC revenue growth was 19.7%, which was in the guided range of 19.5-20%. The company is now guiding revenue growth of 13-15% in CC terms for FY23 For Q4, in terms of revenues by geographies (in CC terms), the North America market (61% of mix), grew 18.1% YoY while Europe and India reported growth of +22.3% and 26.4% YoY, respectively. RoW region grew 9.8%, YoY
- For Q4, vertical wise (in CC terms), BFSI (31% of mix), retail (14.3% mix) & Communication (12.8% of mix) grew 14.1%, 16.5% and 29.2% YoY while energy, manufacturing, hi-tech grew 17.8%, 50.6% and 20.9% YoY, respectively
- Digital revenues increased 38.8% YoY and now accounts for 59.2% of overall revenues. In terms of large deal pipeline, it was down 9.1% QoQ, while it was up at 9.5% YoY to US$2.3 billion. Large deal pipeline for FY22 was at US$9.5 bn in the digital segment, Cloud is growing faster and their cobalt offering is getting lot of traction across clients
- Reported EBIT margins declined ~200 bps QoQ to 21.5% for Q4. EBIT margin was as follows: i) there was an impact of (-160 bps) on lower calendar days and contractual provisions, ii) (-60 bps) on lower utilisation, iii) (-100 bps) due to higher visa costs and third party costs, which were mitigated by (+110bps) salary related benefits. The company is guiding for 21-23% EBIT margin band for FY23, which takes care of compensation tweaking as well one time investments in expansion in cloud and digital capabilities
- Attrition remains a pain point as it has run up sharply in the last few quarters. The company did mention that attrition on an LTM basis has gone up 270 bps to 27.7% now but attrition on a quarterly annualised basis has come down by 500 bps. Sub-contracting costs are also rising as percentage of sales. It was at 11.1% of sales for the quarter vs. 7.5% of sales for Q4FY21
- The company mentioned that they have been in active discussions with clients in terms of price increase amid cost pressure due to supply side challenges. Infy indicated that clients recognised the same and are now receptive to the discussion
- As far as deal wins are concerned, BFSI segment saw 27 deal wins in FY22 where US leads growth. In retail segment, deals were signed in digital and cost saving programs in e-commerce, supply chain, customer lifecycle management, etc, it won 16 large deals in FY22 in this segment. In communications, deals were focused on customer experience, time to market key themes. In energy verticals, deals were signed in digital transformation, customer experience and operational efficiency themes. It won four deals in Q4 and 18 large deals in FY22 in this vertical
- In manufacturing vertical it won six large deals in Q4 and 13 deals in FY22. In this vertical, clients are spending on engineering, cloud ERP, digital transformation, etc. In hi–tech vertical clients are spending on edge commuting, cybersecurity, digital marketing, etc. In life sciences- cloud transformation, reducing clinical trial cycle time, digital patient care are some areas where clients are making investments
- The company has a miniscule presence in Russia (<100 employees), which is now being moved to other delivery centres in eastern Europe. The company clarified that Russian employees were serving global clients. There was addition of 21,948 employees taking employee strength to314,015. The company planning to add 50,000 freshers in FY23 vs. 85,000 in FY22
- ETR for Q4 was lower due to reversal of ₹ 2,420 million (mn) related to priorperiod provisions on certain disputed matters for which the judgment came in favour of the company.
To read the full research click on This link.