MOSL: INFOSYS (Buy)-Thesis of gestation for revenue-margin duality at play
Infosys: Thesis of gestation for revenue-margin duality at play
(INFO IN,Mkt Cap USD41.4b, CMP INR699, TP INR800, 15% Upside, Buy)
- Upbeat revenue but soft margins: In our recent on INFO, we had cited the gestation that one should expect for the company’s revenue-margin duality, given the ongoing investments and the high attrition rate. 2QFY19 performance was a case in point, with CC revenue growth of 4.2% QoQ (8.1% YoY) exceeding our estimate of 3.5% and EBIT margin of 23.7% (flat QoQ despite currency tailwinds) missing our estimate by 40bp. PAT of INR41b grew 5.9% QoQ (1.8% QoQ excl. 1QFY19’s one-off provision), marginally below our estimate of +6.9% QoQ, primarily due to lower margin.
- Strong deals, expect quick conversion: The highlight for the quarter (apart from strong CC sequential revenue growth) was deal wins with total contract value (TCV) of more than USD2b – this was on the back of USD1.1b in the previous quarter, which itself was a multi-quarter high. Management also cited that some of the deals have a shorter tenure, implying a quick conversion to revenues, boosting near-term visibility (notwithstanding the 2H seasonality).
- Where is the currency tailwind? INFO’s flattish margin, despite currency tailwinds, is explained by two factors, in our view: [1] higher variable pay/interventions and promotions to stem elevated attrition and [2] higher sub-contracting costs to meet supply constraint in certain business opportunities.
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.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.