Buy Infosys; target of Rs 1436: Prabhudas Lilladher

Prabhudas Lilladher's research report on Infosys

Infy Q1FY21 results were beat in all parameters- Strong revenue beat & Margin performance, EPS beat & strong deal wins. Infy far surpassed growth expectations reporting 4% QoQ CC growth in revenues as compared to Ple 3.4%/Cons 2.6% QoQ CC. This translates to USD3312mn revenues up 6.1% QoQ (Ple:4%, Cons: 4.1% QoQ in reported terms) beat of 1.2% on our estimates. H1 revenues grew by 1.9% in CC. Growth beat was significantly driven by BFSI (40% of incremental growth), Retail (~25% of incremental growth) and Hitech (~16% of incremental growth). Infy posted a strong margin expansion of ~270bps QoQ to 25.3% (Ple: 23%, Cons:22.9%). We were impressed by the 100 bps contribution to margins from the increase in realization in pandemic times, this reflects pricing power. Infy has added 5 clients in US$100mn bucket, remarkable. Infosys’ new deal wins hit a new high of US$2.7 bn. Net new deals at US$2.7 bn was 2.2X of the previous high achieved in Q2FY19. Even adjusting for US$1.5 bn Vanguard deal, value of net new deals was remarkably strong at US$1.2 bn.

Outlook

We value Infy at 27x to arrive at a changed target price of INR 1436 (earlier: INR1259) on Sep-22 EPS of Rs. 53.2. Infy is currently trading at 22.3X/20.4X FY22/23 earnings of INR 51/55.6 on FY22/23E respectively. Reiterate BUY.

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