Home / News / India /  Infosys shares fall 22% from highs, Why Jefferies has 'Buy' on the IT stock

IT major Infosys' shares have fallen 22% from its highs on the back of weak Q4 results due to margin pressures, as well as growing concerns on growth due to worsening macro and rising yields. 

Analysts at Jefferies believe Infosys is well positioned to deliver 11/15% CAGR in revenue/EPS over FY23-25 as cloud adoption is still low, low US unemployment rates may spur offshoring and reappointment of CEO for another five years provides confidence in execution. 

The brokerage house has reiterated its Buy rating on the IT stock with revised target price of 1,830 per share. Though, it sees sharp derating on lower growth as the key risk.

Even though Infosys’ revenue growth directionally follows US real GDP growth with a lag, the correlation has been low. Besides, Jefferies models a moderation in Infosys’ US dollar growth from 14% in FY23 to 10% in FY25 which is directionally in line with slower GDP growth. 

“With cloud adoption still at sub-40% levels, the current tech spending cycle has more legs in store. Moreover, multi-year low unemployment in the US and potentially weaker economic environment should provide an impetus to outsourcing/offshoring which in turn should drive market share gains for Indian IT/ Infosys," the note stated.

If macro materially worsens, its impact will likely be seen from 2HFY23. Infosys’ revenue growth and margins in FY23 could be at the lower end of its guidance at 13% YoY and 21% respectively, the brokerage added. 

Growth could moderate further to 9% levels in FY24-25, however margins could recover to 21.9% levels over next two years, as demand slowdown may reduce wage pressures, as per Jefferies.

Infosys' margin performance in the March quarter was poor on impact from lower utilisation, and also due to client contractual provisions and third party costs.

“Infosys will also optimize utilization and offshore mix as they have in the past to support margins. Besides, benefits from improvement in its employee pyramid will flow through in FY23 and FY24," the brokerage note said. 

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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