We see Infosys moving along the guided path and a hefty payout (additional dividend of Rs 4 per share and Rs 8,260 crore buyback) limiting the stock downside.
Infosys reported a steady quarter with good topline traction. Revenue in reported currency grew 2.2 percent to $2987 million. Sequential growth in constant currency was 2.7 percent and year-on-year (YoY) growth of 10.1 percent. Digital continued to grow much higher than company average at 33 percent YoY and 5 percent sequentially and formed 31.5 percent of revenue.
In terms of geographies, the key market of North America and Europe grew 2.6 percent and 3.8 percent, respectively while the rest of the world was soft. In terms of services energy utilities, manufacturing as well as financial services were strong.
The deal win momentum was healthy with $1.57 billion of large deals announced and the commentary on the demand environment encouraging.
Consequently, Infosys has revised the FY19 full-year revenue guidance upward to 8.5 to 9 percent (as against 6 to 8 percent earlier) although it has maintained its margin guidance in the band of 22-24 percent.
The 110 basis points drop in operating margin to 22.6 percent was a dampener. While 40 basis points were attributed to higher depreciation due to the reclassification of assets (Panaya and Skava) that it had planned to sell earlier but is not selling now, 20 bps negative impact came from new acquisitions. Lower utilisation and higher onsite mix slashed off 80 bps, compensation hike 30 bps and additional investment 30 bps from margin. This was offset by 50 bps currency gains and 40 bps on account of efficiency. The company continues to invest to enhance capabilities and is therefore not focusing so much on margin.We see Infosys moving along the guided path and a hefty payout (additional dividend of Rs 4 per share and Rs 8,260 crore buyback) limiting the stock downside. The possibility of closing the valuation gap with the leader looks probable.