Accumulate Infosys; target of Rs 1074: KR Choksey

Infosys reported strong operating margins in Q3FY17 at 25.1%, which were 126 bps above our estimates, displaying strong execution despite a de-growth in constant currency pricing of 1.5% qoq. Margins improved on the back of various factors such lower employee costs (by 130 bps) due to lower leave costs in onsite countries, lower variable pay high Utilization rate (81.9%).

We believe that Infosys is developing the right tools and strategies to tackle an otherwise harsh environment in the global IT space. The company’s deployment of automation amongst other disruptive technologies, both internally and externally, to tackle structural issues in the industry should yield results going ahead. Programs such as Design Thinking, Zero Distance and New & Renew should improve client engagement, revenue per client, adoptions and performance. We have “ACCUMULATE” rating on the stock and assign a multiple of 16x to its FY18E EPS of INR. 67.1 to arrive at a price target of INR 1,074.