Buy Infosys; target of Rs 1092: Axis Direct

Axis Direct's report on Infosys

Infosys recorded 24.6% EBIT margin in FY17, higher end of its guidance band (24-25%). However, for FY18, it has lowered its EBIT guidance to 23-25% due to a couple of factors: INR appreciation and investments in onsite development center amidst uncertainty around visa regulations/ increasing local hiring. Management will focus on improving offshore mix (43% of rev; high of 50% in last 5 years), cost optimization and automation tools to drive margin performance.

Outlook

Increasing realization and growth in next-gen services may provide upside and we would watch for margin improvement from the same. We rollover our target price to FY19E and value the company at 15x P/E. Maintain BUY with TP of Rs 1,092(17% upside). At the CMP of Rs 935, the stock trades at 14x/ 13x FY18/ FY19 EPS of Rs 66/ Rs 73.