Buy Infosys; target of Rs 1550: Emkay Global Financial

Emkay Global Financial's report on Infosys

Infosys delivered another stellar quarter, beating our and consensus estimates on revenues and margins. Revenues grew 6.2% QoQ (highest in Q3 in 8 years) to USD3.5bn. Digital revenues rose 12.4%/33.8% QoQ/YoY, contributing over 50% of overall revenues. Infosys raised its FY21 revenue growth guidance to 4.5-5% in cc terms (earlier 2-3%) and EBITM guidance range to 24-24.5% (earlier 23-24%) based on 9M performance and robust deal wins. Revenue guidance implies 0.5-2.5% QoQ growth in Q4. Infosys recorded an all-time high deal TCV of USD7.13bn in Q3 (73% net new). Deal TCV signed in YTD FY21 was ~USD12bn (+63% YoY) with net new deal wins of USD8.2bn (~3.3x YoY). The deal pipeline is healthy (tad lighter after strong conversions in Q2/Q3).

Outlook

We raise FY21/22/23E EPS by 3.5%/5.5%/5.1% on strong Q3. We expect Infosys’ valuation gap with TCS to narrow down further on the back of sustained strong operating performance. The stock has rallied ~20%/~80% in last 1M/1Y. We maintain Buy/OW in EAP with a revised TP of Rs1,550 (Rs1,470 earlier) at 25x FY23E earnings.