MOSL: INFOSYS (Buy)-Revenue-margin duel may have to wait… till stability in general, and attrition in particular, is addressed
INFOSYS: Revenue-margin duel may have to wait… till stability in general, and attrition in particular, is addressed
(INFO IN, Mkt Cap USD42.2b, CMP INR715, TP INR830, 16% Upside, Buy)
- INFO’s two large deals that appeared in the media in 2QFY19 (Verizon and Microsoft) add up to USD1b in total contract value (TCV), on the back of USD1.1b in 1QFY19 (). This bodes well for growth, especially with concerns around Europe’s banking and financial services (BFS) also fading.
- However, with elevation of attrition rates, INFO’s efforts to address the same through variable pay, promotions, etc. could likely mean lower benefits from the depreciation of the INR – keeping the revenue-margin duel at bay for now.
- Such (lack of) correlation of profitability with the direction of the INR-USD is not surprising, when trends of over past seven years are examined.
- That said, in the “stability” phase of FY19—in its three-year roadmap (stability-momentum-acceleration), INFO is building a base for improved revenue growth; while favorable currency provides a tool to effectively address attrition, among other headwinds to business.
- Revenue is the biggest lever for margins in the industry and hence, in combination with a more stable house, should augur well for profitability too. Talent supply at onsite is a bigger risk to margins than pricing—the worst in the latter seems to be behind, as seen in FY18.
- We maintain our Buy rating with a price target of INR830, which discounts forward earnings by 17x.
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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