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Centrum Broking
Infosys (Buy)
CMP: ₹773.4
Target: ₹850
Infosys’ Q3FY20 results were a modest miss on revenue and EBIT margin. Post 3Q revenue miss, we downgrade Infosys dollar revenue growth at 9.2/9.1 per cent for FY20/FY21E (vs 10 per cent/10.2 per cent earlier). Infosys organic dollar revenue growth for FY20E would be 7.8 per cent and rest from Stater acquisition. TCS Organic dollar revenue growth estimate at 6.3 per cent for FY20E. Hence, Infosys could outpace TCS on organic USD revenue growth for FY20E.
Infosys cited that Audit committee found no evidence of financial impropriety. According to the investigation report, all allegations regarding CEO’s personal matters are without merit. The detailed release of the investigation report has been uploaded in the exchanges which gives a clear transparency on the matter.
Clean chit in whistleblower issue is a key positive and removes overhang on the stock. While Infosys appears to be showing better revenue momentum, we expect TCS’ EBIT margin for FY20E at 24.6 per cent which would be about 300bps higher than Infosys EBIT margin (which is 21.6 per cent). Infosys trades at 17.3x FY21E and 16.1x Dec21E EPS and valuations are reasonable. Retain ‘buy’.
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