Buy Infosys; target of Rs 1420: JM Financial

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JM Financial's research report on Infosys

Infosys (INFO) reported a modest 2.3% QoQ constant currency revenue growth in 1QFY19; the operational construct – 2.6% QoQ volume growth in services (highest in the last 10 quarters) and USD 1.1bn large deal wins (highest in the last 7 quarters) – lends comfort on the outlook. Management commentary was optimistic on pick-up of project activity in troubled verticals such as Retail and US Financial Services, and a healthy deal pipeline. The retention of EBIT margin guidance despite the INR depreciation could disappoint some, but we see that as prudent given the concurrent cross-currency headwind. INFO emphasised it is not linking its planned investments in capability build with the currency movement indicating a potential flow-through of currency gains into margin over the medium-term.

Outlook

We have broadly retained our FY19/FY20 EPS estimates that build a gradual revenue growth recovery and stable margins. Superior cash conversion (86% OCF/EBITDA in 1QFY19) and c.6% FY19 dividend+potential buyback yield keeps us positive on the stock. BUY.

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