Broker's call: Infosys (Buy)

| Updated on October 16, 2020 Published on October 17, 2020

Motilal Oswal

Infosys (Buy)

Target: ₹1,355

CMP: ₹1,127.60

Infosys (INFO)’s Q2-FY21 revenue and margin performance were above expectations. The company impressed with a second consecutive quarter of strong margin expansion (270 bps q-o-q in 2Q; 420 bps over H1-FY21).

We expect some margin benefits to be sustainable (driven by automation, etc.). On the other hand, tailwinds (such as increased offshoring, lower attrition, deferred wage hikes, and lower travel/SGA costs) as a result of the pandemic are likely to partly wane out later on as the situation normalises further over the next few quarters.

The highest ever deal wins were reported ($3.15 billion), and the deal pipeline remains healthy. Upward revision to FY21 guidance – with revenue growth of 2–3 per cent y-o-y CC (v/s 0–2 per cent earlier) and margin guidance of 23–24 per cent (v/s 21–23 per cent earlier) – is positive, but still conservative.

We expect Infosys to deliver above guidance in FY21 a) notwithstanding margin headwinds (wage hikes in 4Q, large deal ramp-up, seasonality, above margin factors, etc.) and b) based on strong deal wins.

Infosys should be a key beneficiary in terms of recovery in IT spends in FY22. Additionally, leading operational performance in H1-FY21, coupled with strong deal wins, should translate to strong outperformance on EPS growth (v/s the sector).

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Published on October 17, 2020
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