Buy Infosys; target of Rs 840: Sharekhan

Sharekhan's research report on Infosys

The recent sharp rupee depreciation (around 5% in the past one month) is likely to result in higher upside in EBIT margin and EPS for Infosys, considering 67% revenue booking from USD, lesser cash flow hedges and lower offshore revenue mix (45.4% in Q4FY2018). Since the beginning of Q2FY2019, USD/INR rates have witnessed correction of close to 5.6% and are currently hovering around Rs. 72 levels vs. USD. We have incorporated INR/USD rate of Rs. 70 for FY2019 and Rs. 71.5 for FY2020E. However, the appreciation of USD against major currencies (such as EUR, GBP and AUD) could create cross-currency headwinds to dollar revenue. Hence, we have cut our USD revenue growth estimates and revised upward EBIT margin for FY2019E and FY2020E. Effectively, our earnings estimates have improved by 0.2%/0.5% in FY2019E/FY2020E primarily on reset of INR/USD assumptions.

Outlook

We maintain our Buy rating on Infosys with a revised PT of Rs. 840, rupee reset led to earnings upgrade.