Buy Infosys; target of Rs 1037: Prabhudas Lilladher

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Prabhudas Lilladher's research report on Infosys

Infy Q1FY21 results were beat in all parameters- Strong revenue beat & Margin performance, EPS beat & strong deal wins. Infy reported just -2% QoQ CC decline in revenues as compared to Ple -4.1%/Cons 5.5% QoQ CC. Limited revenue decline helped margin expansion as they started tight cost management from the beginning of the quarter. Infy posted a strong margin expansion of ~150bps QoQ to 22.7% (Ple: 20.6%, Cons:20.5%). Tailwinds were i) INR deprecation (+100bps), ii) Travel & visa cost (+230bps), iii) Lower SG&A (+110bps) & headwinds were i) utilization & pricing (-150bps), ii) Variable (-100bps). Infy surprised the street by Reinstating Revenue guidance of (0-2% CC YoY growth for FY21) gives confidence about growth visibility over the rest of year coupled with strong deal momentum (US$1.7bn, 5.7% QoQ).

Outlook

Due to strong revenue guidance, deal pipeline & strong margin beat led to massive upgrades to our earnings estimates. We increase our EPS estimates by 15%/9% for FY22/23E led by revenue & margin upgrade. We have assigned 20X multiple & value it on Sep-22 EPS of Rs.51.8 to arrive at changed TP of Rs.1037. Infy is currently trades at 17.1/15.1X earnings of Rs.48.5/55.1 for FY22E/23E respectively. Upgrade to Buy from Hold.

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