MOSL: INFOSYS (Buy)-COVID-19 leads to guidance withdrawal!
(INFO IN, Mkt Cap USD35b, CMP INR653, TP INR775, 19% Upside, Buy)
Cautious commentary on expected lines; Reiterate Buy
** Despite COVID-19 impact on utilization, Infosys was able to defend its gross margins (QoQ, 33.4%), which is comforting. Large deal signings in Mar’20 (~USD1.7b v/s USD 1.8b in Dec’19) were impacted. However, it is important to note that run-rate of new deal wins showed a meaningful increase (~50% QoQ). Commentary around continued and broad-based deal wins over the previous ~4 weeks is encouraging. In addition, anecdotal evidence of deal transitions/ramp-ups in a remote manner is reassuring. We expect supply-side aspects to ease off even as Work from Home (WFH) may outlast lockdowns for a significant share of the workforce. In light of the heightened uncertainty in the near term, we were not taken aback by the cautious outlook of the company. Beyond near-term challenges, Infosys (INFO) should be a key beneficiary of digital IT spends by enterprises.
** We have marginally cut our FY21/FY22E EPS estimates as we build in heavier pricing pressure, the impact of which is partially offset by the change in our exchange rate assumption. Reiterating Buy.
Revenue and normalized EBIT margins largely in line
** In 4QFY20, revenue (USD)/EBIT (INR)/PAT increased 4%/7%/6% YoY (v/s our estimates of 5%/8%/3% YoY).
** As client approvals for WFH were not received in certain cases, revenue witnessed ~USD32m (~1% revenue) drop.
** INFO witnessed broad-based decline across geographies with its Indian business witnessing the most pronounced impact (-8.5% QoQ, USD).
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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