Buy Infosys; target of Rs 1360: Emkay Global Financial

Emkay Global Financial's report on Infosys

At its first virtual analyst meet, Infosys provided an update on its growth strategy that is built around four pillars: 1) scaling the agile digital business (~US$6.3bn revenue run rate), 2) energizing clients’ core technology landscape via AI and automation, 3) reskilling employees, and 4) expanding localization in markets such as US, Europe and Australia. Large deal signing remained robust with deal TCV of US$8.3bn on TTM basis (net new share ~54%). Net new deal TCV grew ~59% YoY in H1. The pipeline of large deals expanded significantly with a higher ratio of net new TCV share. The company reaffirmed its FY21 outlook of 2-3% YoY CC revenue growth and 23-24% EBIT margins. Full-year outlook implies a 0.5-1.7% CQGR over the remaining two quarters. It expects growth to accelerate in FY22.

Outlook

Infosys is likely to outgrow TCS for the second year in a row in FY21 while narrowing margin differential. We expect Infosys’ valuation gap with TCS to narrow down further on the back of sustained strong operating performance. We maintain Buy/OW in EAP, with a TP of Rs1,360 at 25x Sep’22E earnings.