Buy Infosys; target of Rs 1220: Prabhudas Lilladher

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Prabhudas Lilladher's research report on Infosys

Infosys’ Q3FY18 results missed our estimates marginally on USD revenues, albeit were in‐line at EBIT margin and adjusted PAT. Infosys continues to show steady EBIT margin lead by offshore shift in effort mix. EBIT margins at 24.3% was up 10bps QoQ (PLe: 24%) led by effort mix shift in favour of offshore. Constant currency revenue growth for the quarter stood at 0.8% QoQ below our estimates (PLe: 1.2%). Infosys retained its constant currency revenue growth guidance for FY18E at 5.5‐6.5% for FY18E (USD revenue guidance retained at 6.5‐7.5%). We estimate Infosys to deliver 7.2% USD revenue growth for FY18E (6.2% constant currency growth for FY18E). We believe constant currency revenue growth for Infosys and TCS would be in a similar range in FY18E (6‐6.5% cc revenue growth). Both these vendors have maintained margin stability despite revenue growth headwinds and absence of currency tailwinds. This was driven by tepid hiring, improving utilisation rates and offshore shift in effort.

Outlook
We expect Infosys to deliver 7.2/9.1% USD revenue growth for FY18/FY19E (7/8.6% USD revenue growth modelled earlier). Currency reset to lower levels leads us to model EBIT margin at 24.3/24.1% for FY18/FY19E (v/s 24.4/24.4% modelled earlier. Our EPS estimates are retained at Rs65/70.5/79/sh for FY18/FY19/FY20E. Led by rollover to FY20E, we raise TP by 6% to Rs1220/sh (15.5x FY20E EPS). Maintain “BUY”.

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