Buy Infosys; target of Rs 1306: Angel Broking

  Angel Broking's report on Infosys
Infosys’ 1QFY2016 results came in well ahead of expectations on the sales front. It posted a 4.5% qoq growth (V/s an expected 4.0% sequential growth) in USD revenues to US$2,256mn (V/s an expected US$2,246mn). Growth in Constant currency (CC) terms was around 4.4% during the period, mainly driven by a 5.4% volume growth (highest in the past 19 quarters). EBITDA margins came in below expectation at 26.2% (V/s 27.7% expected), a qoq dip of 160bp. Consequently, the PAT came in at Rs 3,030cr (V/s Rs 3,227cr expected), a dip of 2.2% qoq. In terms of guidance, the revenue guidance for FY2016 has been retained at 10%-12% in CC terms and has been increased to 7.2%-9.2% in USD terms.

Quarterly highlights: Infosys posted a 4.5% qoq growth (V/s 4.0% sequential growth expected) in USD revenues to US$2,256mn (V/s US$2,246mn expected). The CC was around 4.4% during the period, mainly driven by a 5.4% volume growth. EBITDA margins came in below expectation at 26.2% (V/s 27.7% expected), a qoq dip of 160bp. While the utilization improved to 75.1% (including trainees) V/s 72.8% in 4QFY2015, wage hikes and visa cost led the margins to dip in the quarter. Consequently, the PAT came in at Rs 3,030cr (V/s Rs 3,227cr expected), a dip of 2.2% qoq. On the positive side, quarterly annualized attrition for the company (consolidated) came in at 19.2% in 1QFY2016 compared to 18.4% in 4QFY2015.

Outlook and valuation: "Company has maintained its future CC revenue growth guidance for FY2016 at 10-12%. By FY2017, the company expects to lead industry growth and reach a milestone of achieving sales of US$20bn by FY2020. We maintain our Buy rating on the stock with a target price of Rs 1,306", says Angel Broking research report.

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