We maintain BUY on Infosys (INFY), following a strong 2Q print across revenue, operations and deal wins translating into growth leadership in FY21. Increase in revenue guidance to 2-3% CC for FY21 and margin guidance increase to 23-24% reflect 2Q outperformance and growth visibility for 2H. Growth visibility is predicated on (1) strongest-ever deal wins with large deal TCV at USD 3,145mn comprising USD 2,705mn in new wins (including Vanguard deal), (2) strong commentary on BFSI vertical (five large deal wins ex-Vanguard), Life-science & Hi-tech verticals and recovery in Retail & CPG vertical (three large deals), (3) better supply-side indicators of a wage increase, local hiring program (margin implications), and (4) traction in digital (47.3% of revenue and 25.4% YoY CC), supported by industry tailwinds of cloud migration/DX projects and vendor consolidation. Our target price of Rs 1,230 is based on 23x Sep-22E EPS (15% discount to TCS) with EPS CAGR at 14% over FY20-23E.
* 2QFY21 highlights: (1) Revenue came at a eight-quarter high growth of 4% QoQ CC (2.2% YoY CC). (2) EBIT margin was at 18-quarter high of 25.3%, +268bps QoQ supported by pricing, offshore-mix, higher utilisation, lower SG&A and cross-currency offset by INR appreciation. (3) Wage increase effective 4QFY21 and resumption in variable payout and promotion cycle. (4) Local hiring plans of 12,000 over the next two years planned and current localisation at 63% in the US, hiring in Canada/Mexico to offset H-1B regulatory hurdles.
* Outlook: INFY’s growth leadership and scale, large deal momentum and improving capabilities in Salesforce, ServiceNow, Adobe are key positives. We have factored in USD revenue growth of 5.1%, 11.6%, 10.3% for FY21/22/23E with 3Q/4QFY21 at 3.5/2.5% QoQ. EBIT margin factored in at 24.4/23.0% for 3Q/4Q and 22.8/23.3% for FY22/23E. Valuations are at 22.7/19.9x (~15% discount to TCS) with FY20-23E EPS CAGR at 14%.
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