MOSL: INFOSYS 3QFY20 (Buy)-Encouraging deal wins and guidance upgrade are key positives!
Infosys 3QFY20: Encouraging deal wins and guidance upgrade are key positives!
(INFO IN, Mkt Cap USD44.3b, CMP INR738, TP INR870, 18% Upside, Buy)
Decent outlook in a cautious environment; Reiterate Buy
- The continued strength in large deal wins despite a cautious environment and the revenue growth guidance upgrade have meaningful undertones. It indicates business as usual at Infosys (INFO) despite the whistleblower-related distractions. There were neither any negative client repercussions nor has the time taken for large deal sign-offs increased due to this episode.
- We upgrade our EPS estimate for FY20-22 by 2%-3%, given the robust large deal wins and the decent outlook. Reiterating Buy.
Non-traditional areas drive growth; moderating attrition is a positive
- Revenue grew 9.5% YoY (CC) to USD 3.2b, in line with our estimate. EBIT increased 3% YoY to ~INR52b, a marginal miss. PAT was up 23% YoY to ~INR45b, a marginal beat aided by a one-off (interest income on tax refund).
- Key verticals BFSI (1.6% YoY, CC, Organic) and Retail (2.5% YoY, CC) remained soft. Barring these, growth in most verticals was strong.
- The Americas reported strong growth (10% YoY, CC), while Europe remained weak (4.3% YoY CC, organic).
- Sequential growth across top-25 clients was weak, largely due to furloughs.
- Margin improved 20bp QoQ to 21.9%. Key margin movers are (1) currency (+10bp), (2) cost optimization (+50bp) and utilization dip (-40bp).
- Strength in large deal wins (58% YoY, rolling four-quarter average) and the growth guidance upgrade (from 9%-10% to 10%-10.5% YoY, CC) have surprised us. EBIT margin guidance of 21%-23% was re-iterated.
- While utilization moderated slightly (by 50bp to 84%) off a high base, the meaningful moderation in attrition (~200bp QoQ) is a reason to cheer.
Infosys is a global technology services company based in India. Co. provides business consulting, technology, engineering and outsourcing services. Co.'s end-to-end business solutions include: Consulting and Systems Integration - consulting, enterprise solutions, systems integration and advanced technologies; Business IT Services - application development and maintenance, independent validation services, infrastructure management, engineering services comprising product engineering and life cycle solutions and business process management; and Products, business platforms and solutions, including Finacle™, which addresses core banking, mobile banking and e-banking needs of banks worldwide.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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