MOSL: INFOSYS (Buy)-Setting expectations or resetting margins?
Infosys: Setting expectations or resetting margins?
(INFO IN, Mkt Cap USD40.1b, CMP INR1169, TP INR1330, 15% Upside, Buy)
- FY19 guidance almost in line – in fact, marginally better due to a weaker-than-expected 4Q exit: INFO’s CC revenue growth guidance of 6-8% YoY was nearly in line with expectation. The marginal beat can be ascribed to a weaker exit in 4Q (0.6% CC) than our expectation (1.5% CC). This implies that the CQGR will be better if the guidance is met.
- 4Q profitability was in line: CC revenue growth of 0.6% QoQ was marginally below our estimate, while the EBIT margin of 24.7% was in line. Net profit grew 2.4% QoQ to INR36.9b, below our estimate of INR38b, due to an impairment loss of INR1b taken in respect of Panaya.
- Margin guidance baking in conservatism, in our view: INFO cut its FY19 EBIT margin guidance to 22-24% v/s the FY18 band of 23-25%. This will largely factor in investments in localized talent, revitalizing sales, Digital capabilities and delivery staff. The 1% revision amounts to USD120m, and considering that these are investments in people, which will only come gradually, we see the lower end of the margin band as conservative, and expect it to be raised during the course of the year.
- Capital allocation lends valuation support: Additional USD2b payout over and above the normal dividend payout (policy of 70% of FCF) will peg the cash returns at a high level (INR100/share pre-tax, 8.6% of CMP) for the second year running. This should act as a crucial support for the stock.
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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