MOSL: INFOSYS (Buy)-Dent to hopes of BFSI-led immediate recovery
​INFOSYS: Dent to hopes of BFSI-led immediate recovery
(INFO IN, Mkt Cap USD32.1b, INR933, TP INR1200, 29% Upside, Buy)
- 4Q exit fails to enthuse, again: INFO’s CC revenue was flat, as against our estimate of +1% QoQ. The weak exit has led to guidance of 6.5-8.5% YoY CC growth for FY18, implying a CQGR of 2.2-3.0% v/s 1.4% CC CQGR in FY17. INFO’s guidance was keenly awaited as a cue to any potential recovery in demand given the positive BFSI undertones – which took a slight dent.
- Cuts margin band by 1pp: 4Q EBIT margin contraction of 40bp QoQ to 24.6% is in line with our estimate. Benefits from cross-currency movement were more than offset by reduced pricing. INFO’s revised margin guidance of 23-25% is weighed upon by recent INR appreciation and potential investments to augment onsite presence in US to mitigate any regulatory adversities. PAT at INR36b fell 2.8% QoQ (est. of INR34.2b) due to lower translation losses.
- Joining the payout bandwagon: INFO changed its capital allocation policy from paying out 50% of PAT to 70% of FCF. This is not a material change, as the FY17 payout was 63% of FCF (50% of PAT), and an increase to 70% would imply payout of 55% (of PAT). Additionally, it would payout USD2b in FY18; however, the mode and timeline would become clear over time.
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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