Buy Infosys; target of Rs 810: JM Financial

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JM Financial's research report on Infosys

Infosys (INFO) reported a strong 4.2% QoQ constant currency (CC) revenue growth in 2QFY19 with an impressive operational construct – highest volume growth in the last 10 quarters (+3.2% QoQ) + highest ever large deal wins (USD 2bn) + highest headcount addition in the last 3 years. Management was optimistic about demand momentum sustaining in the core BFSI and Retail verticals. Thus, while the retention of FY19 CC revenue growth guidance could disappoint some, we see it more as a return to the traditional conservatism than a suggestion of any near-term headwind. On margins too, the QoQ flat EBIT margin in 2QFY19 + a static FY19 EBIT margin guidance indicate a preference to use the INR depreciation to build a buffer for managing potential cost pressures. Thus, the net impact on our FY19/FY20 EPS estimates is minimal.

Outlook
We expect the improving execution (CC growth was ahead of TCS after 4 quarters) + the 6.2% dividend + potential buyback yield could help the stock narrow the PER gap (18%) vs. TCS. BUY

For all recommendations report, click here

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