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Published on 22/10/2020 2:17:09 PM | Source: Geojit Financial Services Ltd

Large Cap : Buy Infosys Ltd For Target Rs.1,319 - Geojit Financial

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Growth momentum sustained

Infosys Limited provides IT consulting and software services, including ebusiness, program management and supply chain solutions. The Group’s services include application development, product co-development, and system implementation and system engineering. Infosys targets businesses specializing in the insurance, banking, telecommunication and manufacturing sectors.

* Revenue up 4.0% QoQ on constant currency (“cc”) basis, led by growth seen across most segments on the back of strong execution.

* EBIT margin improved 268bps QoQ to 25.3% on better utilization and improved onsite-offshore mix. PAT rose 14.5% QoQ (+20.6% YoY).

* Q2 saw addition of 96 new clients with the number of $100mn+ clients increasing by 5 sequentially to reach 30.

* Company declared an interim dividend of Rs. 12.

* In the new-normal WFH scenario, Infosys is leading from the front in adopting technologies to ensure seamless connectivity to both its employees, and clients. We remain bullish on INFY’s growth story and retain our BUY with a revised TP of Rs. 1,319 based on 26x FY22E EPS.

Bottom-line soars as margins expand

Q2FY21 revenue grew +4.0% QoQ on cc basis (+8.6% YoY) to Rs. 24,570cr aided by growth across almost all segments. Amongst its business segments, Hi-Tech segment, acting as a growth driver, registered growth of 8.8% QoQ (+31.0% YoY) to Rs. 2,244cr. Life Sciences grew 6.2% QoQ (15.0% YoY) to Rs. 1,672cr. Financials Services went up +5.6% QoQ to Rs. 7,871cr. Geographically, positive revenue growth was seen across all geographies, with India growing 8.0% QoQ, Europe (+5.2% QoQ) and North America (+2.5% QoQ). EBIT stood at Rs. 6,228cr, while EBIT margin expanded 268bps QoQ to 25.3% due to better utilization, increase in RPP and improvement in onsite offshore mix. Resultantly, PAT rose 14.5% QoQ (+20.6% YoY) to Rs. 4,845cr.

 

Key concall highlights

* Company won 16 large deals worth over $3.15bn, of which, 11 were from Americas, 4 from Europe and 1 from rest of world.

* On the back of continued strong deal wins and its solid performance across verticals, management has revised its revenue guidance for the year to 2-3% on cc basis, and also raised its operating profits margins guidance to 23-24%.

* Attrition rate declined significantly to 7.8% from 18.3% in Q2 FY20

* Infosys Cobalt platform launched during the quarter offering over 14,000 cloud assets for enterprises to help them leverage cloud solutions.

* Free cash flows grew 70% YoY to a healthy $674mn during the quarter.

 

Kaleidoscope acquisition to strengthen INFY’s digital offerings

Company recently announced it has completed acquisition of Kaleidoscope Innovation. The product design firm’s addition further strengthens Infosys’ engineering services portfolio. Infosys expects medical devices sector to witness significant investments and consumerization in the post-COVID era, and the firm’s upstream innovation and design offerings should complement well its own validation & commercialisation services.

 

Valuation

Company has a strong balance sheet, high cash reserves and no debt. It has managed to deliver strong performance and is expected to improve from current levels aided by a robust order book and strong execution capabilities. With a bullish outlook, we retain our BUY rating with a revised TP of Rs. 1,319 based on 26x FY22E EPS.

 

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