Buy Infosys; target of Rs 890: ICICI Direct

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ICICI Direct's research report on Infosys

Infosys reported Q3FY20 numbers which were marginally below than expectations on operational front. Below than expected revenue was on account of 2.8% sequential dip in run the business revenues (which we believe is impacted due to furloughs). On the other hand, strong large deal wins (up 14.6% YoY to $1.8 billion) and robust growth in digital revenues (up 39.9% YoY & 7.2% QoQ) were positive. Further, Infosys has raised its constant currency revenue growth guidance to 10-10.5% (from 9-10%) for FY20E while maintained operating margin guidance of 21%-23%. In regards to anonymous whistle-blower complaint, Infosys Audit Committee has found no evidence of financial impropriety or executive misconduct in the allegations. The Audit Committee concluded that no restatement of previously announced financial statements or other published financial information is warranted.

Outlook

Highlight of the quarterly results was the clean chit given by the Audit Committee of the Board to the company in light of anonymous whistle-blower complaint. Further, healthy deal signings, digital growth and scope of margin expansion would drive the profitability. In addition, we expect valuation gap between Infosys and TCS (P/E discount of ~25% based on FY21E EPS) to narrow with improving financials. We roll over our valuations on FY22E and maintain BUY rating on the stock with a revised target price of Rs 890 (based on 18x FY22E EPS).

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