Published on 8/08/2020 1:41:19 PM | Source: HDFC Securities Ltd

Buy Infosys Ltd For Target Rs.980 - 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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Advancing ahead

We maintain BUY on Infosys (top pick), following 1Q revenue/margin outperformance (both absolute and relative). Key positives include the following: (1) large deal renewals (16% YoY) and largest-ever deal win (Vanguard) provide growth visibility; (2) resilience in core geography (NorthAm BFSI) and large accounts supported by demand in cloud, workplace transformation, and automation; (3) operational rigour, aided by cost optimisation (including short-term discretionary cuts), coupled with strong cash flows (1Q FCF/PAT at 130%). INFY’s operational outperformance vs. TCS is reflected in margin differential being the lowest in two years (94bps), lower supply-side disruption, converging attrition coupled with revenue growth premium (>400bps over FY20-22E CAGR). Our target price of Rs 980, 20x Jun-22E EPS (18x earlier), factors in higher visibility/outperformance, following ~7% EPS estimate increase for FY22E.

* 1QFY21 highlights: (1) Revenue and margin beat estimates with revenue decline limited to 2% QoQ and EBIT margin at 22.7%, +149bps QoQ. (2) 15 large wins of USD 1.74bn TCV including five large wins in the BFSI vertical. (3) FY21E revenue guidance of 0 to 2% (CC terms) and EBIT margin band at 21-23%. (4) Digital (44.5% of revenue) grew 25.5% YoY (CC terms).

* Outlook: We expect the USD revenue growth at 1.5%/3.0%/3.0% QoQ over 2Q-4QFY21E and margins at the current level. FY21/22E revenue growth is estimated at 1.0/10.3%, EBIT at 22.5/22.1% and FCF/APAT and payout/FCF at 80/83% over FY21-22E. At CMP, valuations are at 19.7/17.4x FY21/22E (>25% discount to TCS vs. the average of ~15%).


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