Buy Infosys, target Rs 1,419: Edelweiss Financial Services
Edelweiss Financial Services has a buy call on Infosys with a target price of Rs 1,419.
The current market price of Infosys is Rs 1,132.80.
Time period given by the brokerage is one year when Infosys price can reach the defined target.
Investment rationale by Edelweiss Financial Services
New digital-focused strategy: Mr. Salil Parekh, the new CEO, has refreshed Infosys’ strategic direction focusing on: 1) scaling agile digital business; 2) energizing core via AI & automation; 3) re-skilling employees; and 4) expanding localisation. It will increase investments to achieve these objectives, which has led to lowering of FY19 operating margin guidance to 22-24 per cent from 23-25 per cent for FY18. Infosys will also sell subsidiaries Skava and Panaya. We believe, investments towards digital, although margin dilutive, will be positive for long-term growth given rising relevance of these services for clients.
Energy & communication robust; outsourcing in Europe rising: Energy & communication services (ECS) continued its robust momentum riding strong traction in new offerings. As process digitization & IoT are aiding manufacturing post modest growth, legacy modernization & care management are spearheading healthcare traction. Infosys reiterated higher outsourcing level in Europe.
Outlook and valuations: Digital to drive growth; maintain ‘BUY’: We believe, renewed focus on digital will help Infosys drive revenue outperformance in coming years. We cut FY19E and FY20E EPS 0.7 per cent and 4.2 per cent, respectively, as: i) investments in building sales and digital capabilities will lead to 90bps and 70bps margin dilution, respectively; and ii) Rs 130bn payback to shareholders reduces other income. We maintain ‘BUY/SO’ with revised TP of Rs 1,419.
The current market price of Infosys is Rs 1,132.80.
Time period given by the brokerage is one year when Infosys price can reach the defined target.
Investment rationale by Edelweiss Financial Services
New digital-focused strategy: Mr. Salil Parekh, the new CEO, has refreshed Infosys’ strategic direction focusing on: 1) scaling agile digital business; 2) energizing core via AI & automation; 3) re-skilling employees; and 4) expanding localisation. It will increase investments to achieve these objectives, which has led to lowering of FY19 operating margin guidance to 22-24 per cent from 23-25 per cent for FY18. Infosys will also sell subsidiaries Skava and Panaya. We believe, investments towards digital, although margin dilutive, will be positive for long-term growth given rising relevance of these services for clients.
Energy & communication robust; outsourcing in Europe rising: Energy & communication services (ECS) continued its robust momentum riding strong traction in new offerings. As process digitization & IoT are aiding manufacturing post modest growth, legacy modernization & care management are spearheading healthcare traction. Infosys reiterated higher outsourcing level in Europe.
Outlook and valuations: Digital to drive growth; maintain ‘BUY’: We believe, renewed focus on digital will help Infosys drive revenue outperformance in coming years. We cut FY19E and FY20E EPS 0.7 per cent and 4.2 per cent, respectively, as: i) investments in building sales and digital capabilities will lead to 90bps and 70bps margin dilution, respectively; and ii) Rs 130bn payback to shareholders reduces other income. We maintain ‘BUY/SO’ with revised TP of Rs 1,419.
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