Analyst Note| Julie Bhusal Sharma |
Infosys’ fourth quarter was marked by broad-based improvement, with growth in all verticals--which we think is a feat considering verticals like retail remain suppressed due to the global pandemic. Like TCS, the company saw enterprises loosen their wallets on digital transformation projects, of which many were put on hold at the start of the global pandemic. Infosys’ earnings per share came right in line with our expectations as record high utilization and offshore mix led to robust margins. We are increasing our fair value estimate for narrow-moat Infosys to $11.20 (INR 840) per share from $9.80 (INR 720) per share as a result of the time value of money and an even stronger fiscal 2022 than we previously projected. We think Infosys will benefit from a significant top-line rebound this year due to a condensed restart to digitization projects and enterprises’ accelerated realization of the importance of digital transformation--as COVID-19 served as an IT wake up call. Shares are trading near $17.50 (INR 1,400) upon results, leaving the stock in 1-star territory. As a reminder, we assign Infosys a high uncertainty rating due to the risk of Indian wage inflation, which narrows the market price range around when we consider this company is fairly valued.