MOSL: INFOSYS (Buy)-Revenue outlook appears conservative in the backdrop of deals-Margins near bottom
Infosys: Revenue outlook appears conservative in the backdrop of deals; Margins near bottom
(INFO IN, Mkt Cap USD47.2b, CMP INR748, TP INR860, 15% Upside, Buy)
- A solid year on revenues, not so much on margins: INFO ended FY19 with full-year CC revenue growth of 9%, EBIT growth of 10.6% (EBIT margin shrank 140bp YoY) and adj. net income growth of 11.3%. Including the buyback/special dividend, INFO paid out ~125% of its FY19 adjusted profits. For the quarter, INFO grew its revenue by 11.8% YoY CC, EBIT by 3.3% YoY CC and adj. net income by 10.5% YoY CC. QoQ CC revenue growth of 2.1% was in line, but the EBIT margin drop of 160bp QoQ (on adjusted 3Q base of 23%) was higher than anticipated (by 100bp). PAT of INR4.07b exceeded our estimate by 1.5% due to a lower tax rate (22.8% v/s est. of 27%)
- Guidance for 7.5-9.5% revenue growth appears conservative: INFO’s revenue growth guidance for FY20 at 7.5%-9.5% CC is almost similar to that of FY19, if adjusted for the acquisition of Stater NV. That is despite more than doubling of its large deals TCV in FY19, with net-new wins growing even faster. We would expect this to trend up gradually through the course of FY20, similar to FY19. Eventual growth in the guided band amid absence of macro impact will be considered a disappointment.
- Lopsided 4Q growth, but healthy deal wins should address that: 4QFY19 growth was lopsided, with Communications vertical contributing to almost the entire incremental revenues, and combined revenues from other verticals remaining flat. That said, the third consecutive quarter of healthy large deal wins, spread across verticals, should help drive more balanced growth across industries. In terms of momentum, barring Manufacturing in Europe and Healthcare & Life Sciences, revenue traction is strong across verticals.
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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