Buy Infosys; target of Rs 1430: Prabhudas Lilladher

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Prabhudas Lilladher's research report on Infosys

Infosys 1QFY19 results were a mixed bag. Revenues at USD2831mn were up 0.9% QoQ and below our estimates (Ple: USD2853mn). Constant currency growth for the quarter stood at 2.3% which is marginally below our estimates (Ple: 2.7% cc growth). This is in comparison with TCS which delivered 4.1% QoQ constant currency growth. EBIT margin came at 23.7% down 100bps QoQ and down 40bps YoY and below our estimates (PLe: 24.2%). Headwinds from wage hikes (85% of employees have been given wage hikes in 1Q), visa expenses, investments in localization and higher subcontracting expenses were negated by tailwinds from rupee depreciation and effort mix shift to offshore. PAT for the quarter came at Rs36.2bn which is 2.3% below our estimates (PLe: Rs37.2bn). Exceptional item owing to reduction in the fair value of Panaya amounting to Rs2700mn was accounted for the quarter and hence led to PAT miss our estimates. Adjusted for the same, PAT for the quarter came at Rs38.8bn which is above our estimates.

Outlook

Our TP is raised by 3% to Rs1430/sh (18x FY20E EPS vs 17.5x FY20 EPS earlier). Net cash on Infosys balance sheet stands at Rs287bn (USD 4.2bn) which is Rs133/sh (10% of Mcap). Infosys aims to return Rs130bn to shareholders in FY19E. While Rs26bn has been paid as special dividend, we believe Infosys could do a Buy back post Dec 15, 2018 (completion of one year from earlier Buyback) spending ~Rs104bn for the same.

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