Accumulate Infosys; target of Rs 804: Prabhudas Lilladher

Prabhudas Lilladher's research report on Infosys

Infosys has announced strategic partnership with ABN AMRO by acquiring 75% shareholding in Stater NV (a subsidiary of ABN AMRO) which provides pure-play, end-to-end mortgage administration services in Netherlands, Belgium and Germany. Infosys will pay EUR 127.5 mn (~USD 143 mn) for the 75% stake. (Expected closure: Q1FY20). Acquisition of Stater is in sync with Infosys strategy of strengthening its position in Continental Europe and we expect revenue for the business to be ~USD 200 mn with high single digit margin, implying valuation of ~1x EV/Sales. It will add ~1.6% revenue growth & impact on EBIT margins will be 25bps (assuming EBIT margins of 7%) & will be marginally EPS-dilutive on FY20E. The inorganic strategy of Infosys will help them to accelerate revenue momentum.

Outlook

We expect 9.3% USD revenue & 10.3% EPS CAGR over FY19E-21E. We have Accumulate rating on Infosys & value at 18.5x Mar-21 earnings to arrive at a target price of Rs.804.