Infosys Ltd. share price target

13 July 2019 INFO raised the lower end/upper end of its full-year revenue guidance by INFO has started FY20 on a strong note, with constant currency (CC) revenue INR38b. core segments of Financial Services, Communications, Energy/Utilities/Resources, Manufacturing and Hi-tech) delivering double-digit YoY CC growth. 100bp/50bp, taking the full-year revenue growth guidance to 8.5%-10% CC. It is uncharacteristic of INFO to revisit its guidance for the better as early as in 1Q. We believe that this reflects healthy visibility at least for the near term, which should help it deliver double-digit growth for the fiscal. EBIT margin guidance band was maintained at 21-23% (100bp lower YoY). INFO revised its capital allocation policy it will now return to shareholders 85% of cumulative FCF over a five-year period (up from current 70%). INFO reported total contract value (TCV) of deal wins worth USD2.7b for 1QFY20, its highest ever. Net new deals TCV stood at 55%.

Infosys delivered in-line revenue performance, with acceleration in y-o-y revenue growth (12.4%) on constant currency (CC) terms. Revenue growth was driven by strong performance in communication, financial services and North America. Further, digital business (35.7% of its total revenue) continued its strong growth momentum of 41.9% on CC terms. EBIT margin declined by 93 BPS q-o-q to 20.5%, above our estimates, owing to rupee appreciation, wage revision, visa costs and impact from Starter's acquisition. The company signed 13 deals worth $2.71 billion (highest...

In the backdrop of an appreciating rupee and implementation of investments in sales, localization of workforce, and acquisitions to remain relevant, INFY's margins have declined in almost all its business segments. Although there was topline growth and materialization of the deal pipeline into several large deals, ramping up these deals have not proved marginaccretive, as seen historically. The company completed several large acquisitions and has put the unsuccessful deals of the past behind. The management has said strategic investments will continue in FY20. Attrition...

Strong deal pipeline aids higher revenue growth momentum; Key business verticals gaining momentum; Higher employee addition and lower attrition is an added advantage

double-digit constant currency growth helped by ramp-up of building in the recent quarters. Q4 quarterly run rate and now constitutes one third of total portfolio at 33.8%. In Q4, it won 13 large deals totaling about $1.6 billion. Three of these deals were in Financial Services, Manufacturing and Life Sciences, two in Hi Tech and one is in Retail and other segment. Geography wise seven were from America, five from Europe and one from India. Total large deal wins in FY2019 was about $6.3 billion, more than double of FY2018. The share of new...

Infosys' (INFO) Q4FY19 revenue of 2.1% QoQ in CC was in-line with our forecast. However, EBIT margin decline of ~115bps QoQ to 21.4% was a miss. This was offset by lower tax rate which boosted EPS of Rs9.4, +0.4%/+7% QoQ/YoY which was in-line with our forecast. Large deal TCV of US$1.57bn was higher than our forecast. INFO's FY20 revenue guidance of 7.5%-9.5% YoY in CC and EBIT margin guidance of 21%-23% is in-line with our forecast. While we maintain our FY20E revenue forecast, we now factor EBIT margin of 22.3% vs. 23.8% resulting in a 6.2% cut in EPS. We introduce FY21 financials and forecast revenue...

Healthy deal wins, client addition key positive Infosys added one client in the US$50 million, two in the US$100 million and eight in the US$10 million client buckets, representing a healthy client mining and farming strategy. Further, the company's deal wins have also been healthy, up 2x to US$6.3 billion. Out of the overall deal pipeline, we believe US$ 3 billion would be net new deal wins, which can help Infosys to register double digit growth in FY20E. Further, digital growth has also been healthy (up 32.0% YoY, 31% of overall revenues). This gives us confidence...

Infosys reported inline Q4FY19 revenue performance but sharp miss on Change in Estimates | Target | Reco margins due to large deal impact & investments on people. Management guided a lower than expected revenue growth for FY20E due to uncertain...

Infosys's Mar'18 quarter performance was mixed bag with inline revenue, healthy deal wins and subpar operating margins. Combination of soft revenue growth guidance (of 7.5 to 9.5% YoY cc growth) with lower reset of EBIT margin range (to 21-23%) makes FY20 outlook subdued. Tight US talent market and elevated attrition will limit efforts to recoup profitability. We downgrade recommendation a notch to ADD (V/s BUY earlier) even as...

Infosys' softening FY19 margin trajectory (-150bps vs. +80bps for TCS despite INR tailwinds), is expected to continue over FY20 (-160bps erosion). This derives from a rising cost of delivery (higher localisation, sub-contracting) and the persistent challenge of high attrition, large deal investments and softness in the core BFSI vertical. We downgrade Infosys to NEUTRAL (from BUY) post its inline revenues in 4QFY19. The growth challenges and margin trajectory compels us to cut estimates by ~5%. Our TP falls to Rs 755 (Rs 805 earlier) at 18x FY21E EPS.