Buy Infosys; target of Rs 800: Motilal Oswal

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Motilal Oswal 's research report on Infosys

In our recent report on INFO, we had cited the gestation that one should expect for the company’s revenue-margin duality, given the ongoing investments and the high attrition rate. 2QFY19 performance was a case in point, with CC revenue growth of 4.2% QoQ (8.1% YoY) exceeding our estimate of 3.5% and EBIT margin of 23.7% (flat QoQ despite currency tailwinds) missing our estimate by 40bp. PAT of INR41b grew 5.9% QoQ (1.8% QoQ excl. 1QFY19’s one-off provision), marginally below our estimate of +6.9% QoQ, primarily due to lower margin.

Outlook

For FY19/20, we upgrade our revenue estimate marginally by 0.4%/0.7% and lower our EBIT margin estimate by 60bp/85bp. The offset implies unchanged FY20 EPS of INR43. INFO trades at 16x FY20E earnings, still at a meaningful discount to TCS. Visibility on revenue growth lent by 2Q execution and deal wins makes a case for some convergence, though the respective executions on margins will continue to warrant a gap. Our TP of INR800 discounts forward earnings by 17x. Maintain Buy.

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