Infosys Ltd. share price target

INFY's revenue growth has picked up from 6% YoY CC in 1QFY19 to 12.4% YoY in 1QFY20, supported by large deal momentum, growth in digital and acquisitions. But margins have eroded, both on absolute (-320bps YoY) and relative basis (370bps below TCS vs. 130bps a year ago). We don't expect a cure anytime soon. High cost of delivery (rising localisation and sub-contracting), spiking attrition and large deal aggression pose serious hurdles. Current valuations amply bake in our est. USD rev/EPS CAGR of 10/7% over FY19-22E. Increased payout (85% of FCF vs. 70%) and near-term growth momentum will support valuations. The regulatory arbitrage in buyback is now closed, making it as (in)efficient as dividend. Risks to our thesis include INR appreciation and broader macro deterioration. Hold INFY if you must, but only passively. We maintain NEUTRAL on Infosys post a mostly in-line 1QFY20. INFY upped its growth guidance on strong deal wins, but margin concerns persist. Our TP of Rs 770 is based on (a generous) 18x Jun-21E EPS.

Impressive deal wins; risks to operating margins ahead Infosys (INFO) reported a largely in-line Q1FY20 operating performance, with 2.8% QoQ CC revenue growth and 20.5% EBIT margins. At US$ 2.7bn, the company notched up its highest quarterly deal wins, which supported upbeat revenue guidance for FY20. Though strong deal wins and guidance lay the ground for healthy growth momentum, margin management could be a challenge given elevated attrition and tight staff cost control. We tweak FY20/...

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...