Buy Infosys; target of Rs 820: Prabhudas Lilladher
Prabhudas Lilladher’s research report on Infosys
A clean chit by the independent agency has rest the case of the whistleblower. Infosys reported a narrow miss on revenues up 1% QoQ CC (Ple:1.2% CC/Cons: 1.3% CC) with margin expansion of 20bps to 21.9% (Ple:22.6%, Cons: 22.1%). Deal wins were at USD1.8bn & growth guidance revised for FY20 at 10%-10.5% CC (from 9-10% CC). Steady deal wins of USD1.8bn (renewal being 68%) indicates flattish new deal wins for 9MFY20 YoY excluding Stater. We continue to believe headwinds in retail/BFSI & flattish new deal wins would restrict revenue growth to high single digit. However as compared to TCS, Infy will deliver superior organic growth in FY20E (Infy: 7.8%, TCS:6.9%). Infosys deal pipeline with wallet share gains provides industry leading revenue growth visibility in FY21E. We believe deals like Verizon and Stater as pivot for double-digit revenue growth in FY21/22. With steady revenue momentum, we expect Infosys margin improvement to be aided by onsite utilization, improving onsite-offshore mix, rationalizing sub con cost, automation & pyramid optimization. We expect margin to stay in steady narrow range of ~22% in FY21E/22E.
Infosys stock price is still down 10% since the whistleblower allegations took place. Whistleblower allegation was the key overhang on the valuations. Infosys is currently trading at 17X/15.5X FY21E/FY22E multiple which is ~28% discount to TCS multiples’. With the clean chit, strong deal pipeline & margin improvement levers we expect the discount to narrow to 20%. With the modest miss on revenues in Q3 & steady headwinds of BFSI/Retail ahead, we have marginally tuned our estimates & continue to value Infy at 18X multiple at earnings of Rs. 45.5 (Sep-20) to arrive at a changed target price of Rs.820. INFY remains our top pick in tier-1 IT companies.
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.
Get access to India’s fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code “GETPRO”. Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.