Infosys shares rise on better-than-expected Q3: Buy, sell or hold the IT stock?

Shares of Infosys rose marginally to ₹1,489 apiece on the BSE in Friday's opening deals after the IT company reported a better-than-expected over 13% rise in profit in the December quarter and raised its annual sales forecast on a strong deal pipeline even as it warned of "constraints" in certain verticals amid slowing global economy. CEO Salil Parekh noted that Q3 witnessed ‘exceptionally strong growth’ but acknowledged that signs around are showing a slowing global economy. 

“Despite healthy deal wins, Infosys' upward revision in FY23 growth guidance of 16-16.5% implies a soft 4Q. Slowing net hiring also reflects rising caution. We raise our FY23 -25 estimates by up to 2% and expect Infosys to deliver 13% EPS CAGR over FY23-25. Infosys strong execution favorably positions it to gain market share, strong deal bookings and consistent execution provide comfort amidst an uncertain macro. Maintain Buy with target price of ₹1,770/share," said Jefferies in a note.

Despite of client’s cautiousness due to macro uncertainty, deal wins and pipeline remains strong. Certain verticals such as retail, hi-tech, mortgage and telecom are more impacted. However, instead of cutting IT spends, enterprise are incrementally awarding cost-takeout dealsto drive efficiency, especially in the impacted industries," said Edelweiss.

“We maintain a positive stance on the sector. We see strong sustainable demand (transformational/cost-takeout deals) driving revenue growth and margins tailwinds to aid higher earnings growth over the next three years. Valuation, being no longer expensive, makes the risk-reward profile attractive. ‘BUY/SO’ with a TP of INR1,900," they added.

“INFO would be a key beneficiary strong IT spends FY23E. Strong portfolio, diverse service line and companies aggressive approach gives us confidence for top quadrant revenue growth performance in FY23 as well. We believe margin pressure has bottomed out in 1QFY23, here onwards we will observe sustainable margin expansion. Strong pay-out policy and in-turn consistent buyback further gives support to valuations. We value the company at 22x FY25 EPS, implying TP of 1730. Maintain Buy," said DAM Capital.

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