StocksMarket.in

Accumulate Infosys; target of Rs 782: Prabhudas Lilladher

July 15
20:25 2019

Prabhudas Lilladher’s research report on Infosys

Infosys reported organic CC growth of 2.2% QoQ excluding Stater which accounted to 60bps to CC revenue growth. Strong organic revenue growth was led by telecom & energy verticals. EBIT margins were tad better than our estimates at 20.5% (Ple:20.0%). There was some favorable impact from wage hike deferrals in Q2 & +10bps impact for new lease accounting. Hence, PAT was higher 6% than our estimates. We are positively surprised by the management stance on raised guidance to 8.5%-10.0% CC (from 7.5%-9.5%CC) implying 1.5%-2.5% CQGR for the rest of FY20E. Strong deal momentum of US$ 2.7bn (55% of the net new) led to the revised guidance. Strong growth in BFSI, Europe & strong deal win was supported by Stater. EBIT margin guidance was maintained at 21%-23% for FY20E, we expect EBIT margins to be at lower end for FY20E. Attrition remained at elevated levels at 23.4% (300bps) which could imply certain execution risks in near-to medium terms. We are confident about Mr. Salil Parekh’s leadership & execution but we are cautious about margin expansion due to headwinds such as higher compensation, continued investments & impact on margin due to transition & ramp-up of recently won deals. We have increased our EPS estimates by 4% for FY20E to factor higher contribution from Stater deal.

Outlook

We maintain our Accumulate rating & arrive at an unchanged target price of Rs. 782 valued at 18.5X FY21E earnings. INFY is trading at 19.7x/17.3X FY20E/21E earnings. Attrition control & margin improvement will help in further re-rating.

For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Related Articles

Archives