Published on 14/01/2020 10:39:15 AM | Source: HDFC Securities Ltd

Buy Infosys Ltd For Target Rs.854 - HDFC Securities

Posted in Broking Firm Views - Long Term Report| #Infosys Ltd #IT Sector #Broking Firm Views Report #Quarterly Result #HDFC Securities

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Background: Infosys Ltd. (Infosys) is an Information technology services company that provides business consulting, technology, engineering and outsourcing services. The Company also offers products, platforms and solutions to clients in different industries. Its business solutions include business IT services, consulting and systems integration services, products, business platforms and solutions, and cloud computing and enterprise mobility.

Key highlights of the quarter:

* Infosys Ltd reported steady set of numbers for Q3FY20, which were broadly in line with market expectation.

* In USD terms revenue grew by 1% QoQ at USD 3243 mn and in constant currency terms it grew by 1% QoQ.

* In terms of revenues by geographical segments, North America (61.3% of revenues) grew by 1.9% QoQ, Europe (24.4% of revenues) grew by 3.3% QoQ, India (2.8% of revenues) grew by 5.8% QoQ and Others (11.5% of revenues) declined by 0.5% QoQ.

* In terms of USD revenues by industry verticals, Financial Services declined by 0.2% QoQ, Manufacturing grew by 3% QoQ, Retail grew by 1.7% QoQ, Energy & Utilities, Resources and Services declined by 1.3% QoQ and Communication grew by 0.3% QoQ. The company also reported 6.8% QoQ growth in its Digital business with digital offerings now forming 40.6% of the revenues.

* The company ended the quarter with ~Rs.172.9 bn of cash and cash equivalents.

* The management raised its revenue growth guidance for FY20 for second consecutive quarter to 10-10.5% YoY in constant currency terms from earlier guidance of 9-10% YoY and maintained its EBIT margin guidance steady at 21-23%.

View: The Q3FY20 numbers of Infosys saw broad-based revenue growth across most of its verticals, with some deceleration in revenue growth momentum. While the quarterly results were largely in line with the market expectations, clean chit in whistle-blower issue by the audit committee is a key positive and this is likely to remove overhang on the stock. While the Financial Services segment continued its growth acceleration aided by Stater acquisition, company is seeing some challenges in organic growth in the segment. The company’s strategy on improving productivity in the legacy business and trying to grow newer high margin services business is likely to help it to achieve better growth. The strong deal wins in the last few quarters may lead to improvement in revenue growth in the medium term. Moreover, second consecutive quarter of upward revision in the FY20 revenue guidance also works in favour of the company. Currently, we have a Buy rating on the stock and maintain our target price of Rs.854 at 19x FY21 EPS of Rs.42.7 and adding Rs.45 cash per share. Any changes in the price target/valuation multiple would depend on the ability of the company to outperform its guidance, future margin profile, inorganic initiatives and general business momentum.


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