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Infosys – Headwinds largely priced in, ICICI Securities

We believe INFY’s FY24 revenue guidance of 4-7% YoY CC is healthy because CQGR of 2.3-2.9% implied by mid to high end of the guidance is higher than INFY’s pre-covid CQGR of 2.2%.

INFY has strong digital capabilities around SaaS and hyperscalars and is best placed to benefit from the revival in demand for digital technologies over FY25-26E.

We believe INFY’s margins will likely remain subdued over FY24- 26 given focus on winning mega deals that are margin dillutive in inital years, lagged benefit of pyramid optimisation, little scope to improve offshore effort mix, and increase in travel costs as %age of revenue. Above-margin headwinds can be partially offset by improvement in utilisation and reduction in sub-con costs. We assume 90bps decline in margins over FY23-26E for INFY.

INFY is trading at an attractive valuation of 19.6x 1-year forward P/E closer to its last 15- yr average multiple of 19x.

INFY has already announced 4-5 deal wins in the Q1FY24 and has good mega deal pipeline. We believe the risk-reward ratio is favourable with limited downside for INFY from current levels in a bear case scenario of ~8-9% YoY CC revenue growth in FY25E and FY26E.

INFY valued at 23x on FY26 EPS of Rs80, discounting back by 1 year at 12% to arrive at a target price of Rs1,641, implying 30% potential upside; maintain BUY rating on the stock.

For report,


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