Hold Infosys; target of Rs 735: Nalanda Securities

Nalanda Securities' research report on Infosys

Infosys Limited (INFO) revenue rose 0.6% QoQ to INR 2,15,390 million, in constant currency terms. Revenue in dollar terms rose 2.4% to $3,060 million. Operating profit fell 4.4% to INR 46,180 million. Operating margin fell to 21.4% from 22.6%. Infosys has given an operating margin guidance of 21-23% on a revenue growth outlook of 7.5-9.5% in constant currency terms. In the last quarter, Infosys’ operating margin was 21.5%. Subcontracting costs declined marginally on a sequential basis. Subcontractors typically cost 20-25% more than own employees. As a percentage of revenues, subcontracting costs declined by 20 bps QoQ but was up 130 bps YoY. YoY margin impact due to subcontractor use is ~35 bps.

Outlook

At CMP of INR 728, the company is trading at 17.3x FY21E EPS. We value the company using P.E. multiple methodology. We have given an exit multiple of 17.4x for PE to arrive at a target price of INR 735 which is an upside of 1%.