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Centrum Broking
Infosys (Add)
CMP: ₹767.8
Target: ₹850
Infosys’ Q2FY20 results were a mixed bag with modest revenue miss negated by EBIT margin beat. Post modest 2Q revenue miss, we model Infosys dollar revenue growth at 10/10.2 per cent for FY20/FY21E (vs 10.6 per cent/9.8 per cent modelled earlier). Cross currency headwind and modest 2Q revenue miss leads us to marginally trim FY20 dollar revenue growth assumption.
Infosys dollar revenue growth for FY20E would be 8.7 per cent and rest from Stater acquisition (TCS dollar revenue growth estimate at 6.6 per cent for FY20E). Hence, Infosys could outpace TCS on organic dollar revenue growth for FY20E. Steady 2Q margin execution and factoring a modest rupee depreciation (versus dollar) compared to earlier assumptions negates headwinds from dollar revenue downgrade. Hence, our EBIT margin and EPS estimates of Infosys remain intact. While Infosys appears to be showing better revenue momentum, we expect TCS EBIT margin for FY20E at 24.7 per cent which would be about 300 bps higher than Infosys (which is 21.7 per cent). Hence, we believe Infosys could continue to trade at 10 per cent discount to TCS. Retain Add.
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