INSUBCONTINENT EXCLUSIVE:
Sharekhan has a buy call on Infosys with a target price of Rs 1,450.
The current market price of Infosys is Rs 1,333.05.
Time period given
by the brokerage is one year when Infosys price can reach the defined target.
Investment rationale by Sharekhan:Infosys reported a steady
quarter in terms of Constant currency (CC) revenue and operating profitability along with improved deal wins in Q1FY2019
Infosys reported Constant currency (CC) revenue growth of 2.3% q-o-q in Q1FY2019, in-line with our estimates, led by volume growth of 2.3%
q-o-q, while blended pricing continued to remain flattish
On a reported basis, USD revenues increased by 0.9% q-o-q to $2,831 million in a seasonally strong quarter, owing to cross-currency
EBIT margin has declined by 100bps q-o-q to 23.7% (in-line with our expectations) owing to salary hikes (85% of employee) and additional
investments in digital, localization and revitalization of sales
EBIT margins during the year were negatively impacted by 240 bps q-o-q owing to a wage hike (100 bps) and additional expenses including
subcontracting cost and spending on digital (140 bps), partially offset by rupee tailwind (100bps) and operational efficiencies (40 bps)
As a result, net income during the quarter declined by 2.1% q-o-q.
We have fine-tuned our earnings estimates for FY2019E/FY2020E on account
of the currency reset and continuation of efficiency improvement
At the CMP, the stock is trading at 17.8x/14.7x FY2019/FY2020E earnings estimates, a significant discount to TCS
We continue to believe that the valuation gap would gradually narrow as Infosys is catching up with TCS on most parameters
With the stability of the organization under the new leadership, addition of large accounts and ramp-up in deal wins, we expect Infosys to
deliver earnings CAGR of 12% over FY2018-FY2020E
Therefore, we maintain our Buy rating on the stock with a revised price target (PT) of Rs
