MOSL: INFOSYS (Buy)-Holding fort-no red alarms post CEO exit

​Infosys: Holding fort; no red alarms post CEO exit

(INFO IN, Mkt Cap USD32.7b, CMP INR927, TP INR1100, 19% Upside, Buy)

In-line revenues and better margins; no red alarms post CEO exit

• 2QFY18 CC revenue growth of 2.2% QoQ was in line with our estimate. YoY CC growth decelerated to 4.6% from 6% in 1Q. EBIT margin of 24.2% (+10bp QoQ) implies a 90bp beat, led by yet another quarter of strong execution, which, in turn, drove 4.9% PAT beat (INR37.3b v/s est. of INR35.5b).
  
• INFO cut its FY18 revenue growth outlook to 5.5-6.5% from 6.5-8.5% (implies 1% CQGR at the midpoint for 2H). We read this as a function of: [1] lower 2Q growth than that seen historically, even in subdued years and [2] conservatism that has characterized the founders' approach in the past.
  

Strategy is only as good its execution

• Among key developments, INFO's board reaffirmed the previous findings of external investigations that there is no merit to the allegations of wrongdoing, adding that full investigation report will not be released. The reaction of disappointment to the same by Mr. Narayana Murthy raises doubts if governance issues around Panaya acquisition and former CFO severance are behind.
  
• Nandan's brief on INFO's strategy refresh reiterated in many ways the "Renew & New" journey through a combination of "Software + Services" that INFO has been part of, but laid clear thrust on getting the execution engine right and accelerating the pace of change. Capital allocation strategy and acquisitive intent remain intact.