Accumulate Infosys; target of Rs 1070: Prabhudas Lilladher

Prabhudas Lilladher's research report on Infosys

Infosys’ results were steady with USD revenues in‐line with our estimates and EBIT margin and PAT ahead of our estimates. EBIT Margins at 24.2% has surprised positively (PLe: 23.3%) led by headcount reduction and mix shift of effort in favour of offshore. Constant currency revenue growth for the quarter stood at 2.2% QoQ in‐line with our estimates (PLe: 2.2%). We note that TCS delivered 1.7% cc growth for 2QFY18. Infosys has trimmed its constant currency revenue growth guidance for FY18E to 5.5‐ 6.5% for FY18E (vs 6.5‐8.5%). (USD revenue guidance revised to 6.5‐ 7.5% vs 7.1‐9.1% YoY for FY18 earlier). The USD revenue guidance implies a 0.5‐1.7% CGQR over the remaining two quarters. Infosys cited traditional seasonality which could lead to softer revenue growth in 2HFY18. We expect TCS to deliver 6.3% constant currency revenue growth for FY18 and hence Infosys constant currency revenue growth guidance is not materially different from its peer. We believe that founder returning to the board must have also led to return on conservatism on the guidance front.

Outlook
We factor buyback in our assumptions which leads us to reduce sharecount for FY19. Downgrade in USD revenues assumptions are negated by EBIT margin upgrade and lower sharecount (factoring Buyback). Hence, our EPS estimates are retained at Rs65/71/sh for FY18/FY19E. Retain TP at Rs1070/sh (15x FY19E EPS). Infosys is trading at 13x FY19E which is at 25% discount to TCS. New CEO appointment would be the next major trigger for the stock. Retain Accumulate.

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