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Prabhudas Lilladher
Infosys (Accumulate)
CMP: ₹742.3
Target: ₹804
Infosys has announced strategic partnership with ABN AMRO by acquiring 75 per cent shareholding in Stater NV (a subsidiary of ABN AMRO) which provides pure-play, end-to-end mortgage administration services in Netherlands, Belgium and Germany.
Infosys will pay €127.5 million (about $143 million) for the 75 per cent stake. (Expected closure: Q1FY20). Acquisition of Stater is in sync with Infosys strategy of strengthening its position in Continental Europe and we expect revenue for the business to be about $200 million with high single digit margin, implying valuation of about 1x EV/Sales. It will add about 1.6 per cent revenue growth and impact on EBIT margins will be 25 bps (assuming EBIT margins of 7 per cent) and will be marginally EPS-dilutive on FY20E.
The inorganic strategy of Infosys will help them to accelerate revenue momentum. We expect 9.3 per cent dollar revenue and 10.3 per cent EPS CAGR over FY19E-21E. We have ‘Accumulate’ rating on Infosys and value at 18.5x Mar-21 earnings to arrive at a target price of ₹804.
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