Infosys shares fell on Monday after Jefferies lowered its target price for the IT stock by almost 11 percent and said it sees downside risks to its earnings growth.
Infosys shares were under selling pressure on Monday after Jefferies cut its target price for the software exporter's stock by about 11 percent. The brokerage brought down its target price to Rs 1,830 from Rs 2,050, though it retained its 'buy' call on the stock.
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Infosys has corrected by 20 percent since March on the back of weak January-March results and rising concerns on growth, according to Jefferies.
However, the brokerage said Infosys has become more growth-focused since CEO Salil Parekh-led management team took over. Last month, Infosys reappointed Parekh as its MD and CEO for a five-year period ending March 2027.
According to Jefferies, the company is well positioned to deliver a revenue CAGR (compound annual growth rate) of 11 percent over the period from the financial year 2022-23 to 2024-25.
It sees a CAGR of 15 percent in the company's earnings per share (EPS) during this period.
"Even though its revenue growth directionally follows US real GDP growth with a lag, the correlation has been low," said Jefferies, which models a moderation in the company's growth from 14 percent in 2022-23 to 10 percent in 2024-25, directionally in line with slower GDP growth.
If the macroeconomic situation worsens materially, its impact will likely be seen from the second half of the year ending March 2023, the brokerage said.
It also highlighted that the stock trades at a valuation of 25 times, which is higher than its historical average of 18 times. However, it is of the view that the valuation is justified given the company's superior growth outlook, consistent execution under the current CEO and higher payout ratios.
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Jefferies cited a derating of the price-to-earnings ratio on potential growth disappointments as the key risk to its call on Infosys.