Prabhudas Lilladher's report on Infosys
Infosys’ Q4FY15 performance was below expectation, but FY16 guidance and Aspiration 2020 set the tone for near term and visionary path for longer horizon. The company continues to make M&A in newer technologies and increase in dividend payout as a core to their capital allocation. The goal is to drive productivity in the commoditized business, retain operating margin at 25% (-/+1%), and reinvest some gains in the business. We expect the efforts to be translated into results in H2FY16.
Weaker than expected quarter: Revenue de-grew by 0.4% (@cc) QoQ, which was softer than expectation (Cons./PLe: ~+2.5%). According to the management, the softness can be attributed to weaker than expected volume growth and pressure on pricing in commoditized business.
FY16 Guidance v/s Vision-2020 – In the right groove: Management was confident of achieving 10-12%YoY CC growth (USD term: 6.2-8.2%YoY), implying 2.8-3.6% CQGR. Moreover, Aspiration for 2020 to achieve US$20bn revenue with margin of 30% includes productivity improvement to $80k/person (from $53k/person in FY15), $1.5bn contribution from inorganic initiatives and $2bn from newer technologies. Even with margin error of 10% on vision execution, implies 14%+ EPS CAGR (FY15-21E). We see both, guidance and vision, ahead of consensus expectation. Moreover, Infosys’ aspiration to return back to industry leading growth in FY17 (by Mr. Murthy) is still intact. (Exhibit: 1-4)
Investment in technology key to sustain pricing pressure: Management vision to invest in technology remains key to the success of achieving Vision-2020. Infosys continues to invest in Cognitive Computing, Automation, and Design Thinking to capture next generation technology wave. Moreover, Infosys acquired Kallidus (Skava) and invested in Airbiz during he quarter. We expect Infosys to continue on the path of acquisition in FY16 to fast-pace newer technology adoption in the company.
Valuation & Recommendation – Retain ‘BUY’, revise TP to Rs 2,530: "We expect new strategic initiatives announced by Dr. Vishal Sikka to start bearing fruits only in H2CY15. However, we believe, his initial client-connect (met 500 clients) will start translating into improved growth momentum in H1FY16. Retain buy", says Prabhudas Lilladher research report.
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.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
Read More
