MOSL: INFOSYS (Buy)-On course to meet guidance amid strong execution
​Infosys: On course to meet guidance amid strong execution
(INFO IN, Mkt Cap USD34.5b, CMP INR972, TP INR1200, 24% Upside, Buy)
- Steady start against FY18 guidance: INFO’s 1QFY18 revenues and operating margins came in marginally ahead of expectations, putting it on track to achieve the full-year guidance (6.5-8.5% YoY CC revenue growth at 23-25% EBIT margin). CC revenue growth stood at 2.7% QoQ (est. of 2.2%) and EBIT margin at 24.1% (est. of 23.7%) in 1QFY18. PAT declined 3.3% QoQ to INR34.8b, in line with our estimate of INR34.4b.
- Our estimates factor in BFSI caution: We were estimating 6.5% YoY CC revenue growth, at the lower end of the guided band, which now stands at 7% after marginal 1Q beat. We are still at the lower half of the guided band given: [1] ask rate of 2.5% for the remainder of the year to reach the midpoint (including seasonally weak 2H), and [2] expectation of gradual recovery in BFSI demand baked into the guidance, but the secular trend is yet to manifest itself.
- Strong execution was the highlight: Amid currency movements (60bp headwind), visa costs, sub-contractor expenses and higher variable pay (140bp headwind), INFO managed to curtail margin contraction to only 40bp QoQ, led by uptick in utilization (+200bp QoQ to all-time high of 84%, excluding trainees) and realization improvement (+100bp QoQ). While wage hikes will pose ~100bp headwind to margins, onsite roll ratios will continue to be optimized, apart from the use of automation, as levers to margins. INFO’s OCF to PAT conversion was 100%+ for the fourth consecutive quarter.
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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