Buy Infosys, target Rs 810: Antique Stock Broking

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Antique Stock Broking has a buy call on Infosys with a target price of Rs 810.

The current market price of Infosys is Rs 699.70.

Time period given by the brokerage is one year when Infosys price can reach the defined target.

Investment rationale by the brokerage-

Infosys 3QFY19 CC revenue growth at 2.7 per cent/10.1 per cent QoQ/YoY was significantly ahead of street estimates of 1.7 per cent QoQ growth.

Revenue growth was driven by continued growth in financial services, energy & utility and manufacturing verticals.

Order bookings in 3QFY19 continued to be strong with $1.5bn+ large deal wins, of which 30 per cent is net new business.

Management is positive on the demand outlook across verticals and geographies and the company has not witnessed any alteration in client spending despite the volatility in the macro environment.

Led by strong revenue momentum, robust outlook and deal win, the company has revised its FY19 CC revenue guidance to 8.5 per cent-9 per cent (from 6 per cent-8 per cent).

Mid-point of guidance implies 1.1 per cent/10.7 per cent QoQ/YoY revenue growth in 4QFY19. 3QFY19 adjusted EBIT margin at 23 per cent is down 70bps/130bps QoQ/YoY and 50bps below street estimates (Margin adjustment explained in detail on page 2).

Margins have been impacted by investment in sales, localization, agile, re-skilling, catch up on compensation and initial impact of acquisitions.

The company expects Q4FY19 margins to be impacted by rupee appreciation, targeted compensation corrections, continued investments in business and initial margin impact due to transition and ramp up of some recently won deals.

Overall a strong quarter by Infosys on the revenue front, with strong demand outlook and healthy deal wins.

While margins in the quarter were impacted by multiple headwinds we believe margins will stabilize FY20 onwards. The company has specifically mentioned about there being no incremental investments in the business in FY20, which gives us the comfort of stable margin trajectory in FY20. Further, we believe the investments made by the company to be more relevant in the market place, will start yielding results and lead to an accelerated growth rate for FY20.

The company’s YoY CC rate is now at double-digit (10.1 per cent for Q3FY19) after nine quarters and we expect this trend to continue going forward. Led by strong revenue beat in Q3 and revenue guidance revision we upgrade our FY19/FY20/FY21 $ revenues by 0.6/1.4/2.3 per cent respectively. We cut our EBIT margin estimates slightly, net-net our EPS numbers are unchanged. We maintain BUY with a target price of Rs 810 (based on 18x FY21E EPS).

The stock is trading at 16.8/15.3X FY20/FY21E EPS which we believe is attractive given the improving business outlook evidenced by revenue growth acceleration.

Source: Economic Times