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Strong bookings to insulate near-term revenue growth

Attractive valuation, reiterate BUY

* INFO reported strong 3QFY23 revenue of USD4.66b, up 2.4% QoQ in CC terms, ahead of our estimate of 1.5% QoQ CC. It posted a strong large deal TCV of USD3.3b (up 22% QoQ, net new at 36%), the largest ever since 3QFY21. Management sees strong traction in the large deal pipeline, despite an adverse demand environment.

* The weakness is clearly visible in parts of Retail, Hi-Tech, Financials (Mortgages and IB), and Telecom. Despite the weakness, INFO raised its FY23 revenue growth guidance to 16.0-16.5% YoY in CC terms from 15-16% earlier, implying a limited impact from macro headwinds next quarter.

* EBIT margin was flat QoQ at 21.5% in 3QFY23, in line with our estimate. Easing supply, a 6% drop in quarterly annualized attrition, utilization buffer, and fresher deployment should help INFO to deliver 21.2% margin in FY23, in line with the lower end of its EBIT margin guidance of 21-22%.

* We are positively surprised by a TCV of USD3.3b, the second highest in its history and up 20% QoQ despite pressure on end-demand. Strong vendor consolidation deals and cost optimization projects continue to help INFO to gain market share. LTM large deal TCV of ~USD10b and guidance upgrade should more than adequately cushion the near-term headwind from weak macro and assuage growth concerns.

* Strong traction in vendor consolidation and cost takeout deals should help INFO to deliver an ~11% revenue CAGR over FY22-25, despite macro headwinds in H1FY24. We factor in a margin of 21.2%/21.5%/22.0% in FY23E/FY24E/FY25E, leading to a 13.5% PAT CAGR over FY22-25E.

* We have kept our FY23/FY24 EPS estimates broadly flat but tweaked our FY25 EPS estimate to account for better growth after the strong 3QFY23 result. We view INFO as a beneficiary of acceleration in IT spends, given its capabilities around Cloud and Digital transformation. We value the stock at 26x FY24E EPS and reiterate our Buy rating.

Strong Topline and TCV growth; FY23 guidance upped

* In CC terms, revenue grew by 13.7% YoY, INR EBIT rose 10%, and INR PAT increased by 13% in 3QFY23. ? Revenue stood at USD4.66b, up 2.4% QoQ in CC terms, above our expectation of 1.5% CC. Reported USD grew by 2.3% QoQ. ? For 9MFY23, INFO delivered USD Revenue/ INR EBIT/ INR PAT growth of 13.5%/ 9.4%/ 9.4% YoY respectively.

* EBIT margin at 21.5% was flat QoQ and in line with our expectation.

* Management has upgraded its FY23 revenue growth guidance by 75bp at mid-point to 16.0-16.5% in CC from 15-16% YoY earlier. EBIT margin guidance has been retained at the 21-22% range. ? INFO saw a large deal TCV of USD3.3b, up 22% QoQ, the largest ever after 3QFY21.

* INFO reported a good FCF/PAT conversion ratio of 72% in 3QFY23. Cash and investments stood at USD3.9b.

* Net profit grew by 9.4% QoQ to INR65.9b (in line).

Key highlights from the management commentary

* INFO reported a strong TCV of USD3.3b (the highest in the last eight quarters), with the highest-ever 32 large deals, of which 36% were net new. The deal pipeline remains strong with a higher focus on cost-saving programs.

* Signs of weakness in macro are clearly visible. Europe is more affected than the US. Mortgage, IB, Telecom, Hi-Tech and Retail are the most affected, with uncertainty on spends.

* There are strong opportunities in vendor consolidation, which comes up in a lot of discussions where clients are looking to consolidate vendors to 1-3 from current 6-7 vendors.

* Quarterly annualized attrition was down by over 6% in 3QFY23, taking quarterly attrition below the 20% mark. LTM attrition is expected to further drop going forward.

Valuation and view

* INFO posted a strong set of earnings in 3QFY23 despite seasonality. Its strong FY23 growth guidance and strong deal pipeline provide further demand visibility.

* We expect INFO to deliver margin at the lower side of its guided band, with strong growth and reduced dependence on sub-contractors as attrition falls.

* We expect INFO to be a key beneficiary of acceleration in IT spends. Based on our revised estimates, the stock is currently trading at 22x FY24E EPS. We value the stock at 26x FY24E EPS, implying a TP of INR1,760.

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