Buy Infosys; target of Rs 1100: Motilal Oswal

Motilal Oswal's research report on Infosys

2QFY18 CC revenue growth of 2.2% QoQ was in line with our estimate. YoY CC growth decelerated to 4.6% from 6% in 1Q. EBIT margin of 24.2% (+10bp QoQ) implies a 90bp beat, led by yet another quarter of strong execution, which, in turn, drove 4.9% PAT beat (INR37.3b v/s est. of INR35.5b). INFO cut its FY18 revenue growth outlook to 5.5-6.5% from 6.5-8.5% (implies 1% CQGR at the midpoint for 2H). We read this as a function of: [1] lower 2Q growth than that seen historically, even in subdued years and [2] conservatism that has characterized the founders' approach in the past.

Outlook

INFO's rollercoaster ride in recent years has witnessed more downs than ups. However, there is hope for stability after having come a full circle, with reinjection of founder influence following the appointment of Mr Nilekani. INFO's 2Q performance and FY18 guidance quell fears of impact on business post the leadership exit, and we note that ex-RBS, the midpoint of current guidance is close to industry. Minor earnings upgrades post 2Q are a function of continued positive surprise on margins execution, and we expect INFO to sustain midpoint of 23-25% range. Our price target of INR1,100 discounts forward earnings by 15x, implying 19% upside. We retain our Buy rating, and will be buyers into any negative reactions to the guidance post the results.

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