Buy Infosys; target of Rs 1430: Sharekhan

Sharekhan's research report on InfosysFor four back-to-back quarters now, Infosys has continued to deliver a strong performance. For Q4FY2016, it delivered a sequential growth of 1.9% (highest sequential growth in the last 24 quarters in Q4, which is a seasonally weak quarter) in revenues (on constant-currency [CC] basis), driven by 2.4% volume growth and 1.1% pricing fall. On a reported basis, the revenues were up by 1.6% QoQ to $2,446 million. The earnings before interest and tax (EBIT) margin for the quarter was up by 60BPS QoQ to 25.7% (in line with our expectations) on the back of improved utilisation including trainees (up 50BPS), lower subcontracting expenses and rupee depreciation, partially offset by pricing drop. Despite lower other income (down 3.7% QoQ) and higher tax provisioning (up 70BPS QoQ), the net income for the quarter grew by 3.8% QoQ to Rs3,597 crore. Infosys signed six large deals with a total contract value (TCV) of $757 million (vs $360 million in Q3FY2016) during the quarter and two deals of $470 million, not yet committed. The total deal wins increased by 45% YoY to $2.8 billion in FY2016 as compared with $1.9 billion in FY2015 Given the growth acceleration in the recent quarter and strong revenue visibility led by improvement in wins rate, the growth revival strategy is working well under the leadership of Dr Vishal Sikka. The market-share gain with some pricing discipline coupled with improvement in wins rate and strong deals pipeline provide confidence on demand visibility. Further, automation, renew execution delivery and operating levers (offshore shift, utilisation and lower subcontractors expenses) will take care of margins trajectory. At the current levels, the stock trades at 18.4x and 16.5x its FY2017E and FY2018E estimates, respectively. We have maintained our Buy rating on the stock with an unchanged price target of Rs1,430. For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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