Infosys’ (INFO) Q2FY22 result was better than our forecast on all front. Q2FY22 revenue grew by 6.3%/19.4% QoQ/YoY in CC. EBIT margin declined 10bps QoQ to 23.6%. EPS of Rs12.9, 5.2%/+12.7%, QoQ/YoY was also better than forecast. Q2FY22 saw large-medium term deal with TCV of USD 2.15 bn (net-new being ~37%). For FY22, INFO has revised its revenue growth guidance to 16.5 to 17.5 YoY in CC (vs. 14% to 16% earlier) which was ahead of our expectation. EBIT margin guidance remained unchanged 22% to 24% despite a higher growth, stated IDBI Capital Equity Research in its report.
"We factor the beat in Q2FY22, broad based revenue growth, multi-year digital growth, robust TCV win, FY22 guidance revision and increase FY22/23E revenue (in USD) by 0.7%/3.1% and EPS by 4.8%/9.2% for FY22/23E. We now forecast revenue growth of 17.8%/17.4% and EPS of Rs53.9/64.7 for FY22/23E. Hence, we recommend BUY with new TP of Rs 1,980 (vs. Rs1,595 earlier) based on 31x FY23E," the broking firm added.
Key highlights
Growth accelerated in Q2 with resilient operating margin
Q2FY22 revenue grew by 6.3%/19.4% QoQ/YoY in CC and 5.7%/20.7% QoQ/YoY in USD terms. The company witnessed broad based growth across all sectors, service lines, and geographies, with the digital solutions (56.1% of revenue) growing by +42.4% YoY in CC terms. USD100 million clients were +1 QoQ to 35. Q2FY22 saw EBIT margin declining by 10bps QoQ to 23.6%. It was impacted by higher subcontracting cost (-50bps) and wage hike (-110bps), partly offset by cross currency (+30bps) and other operational efficiency (+80bps) and SG&A (+30 bps).
Digital and client mining driving growth
INFO investment in cloud and sales is paying off. The company is seeing healthy traction in cloud, cybersecurity and experience. This coupled with healthy client mining, winning large deals, healthy pipeline, multi-year tech growth (56% revenues is from digital tech) and increase in hiring (from 35000 fresher to 45000) all indicate strong revenue growth in coming quarters. This prompts us to be positive on the stock from a long term perspective.
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