Axis Securities gives Buy recommendation on Infosys Ltd, with target price of Rs. 860

Infosys Ltd. reported strong top line growth and healthy deal wins in Q3FY20. Infosys posted revenue growth of 9.5% on YoY basis and 1.0% on QoQ basis in constant currency terms for the period of Q3FY20. Infosys reported steady deal wins (14 large deals) with a TCV of $1.8bn despite Q3 being a seasonally weak quarter. Operating margins have improved by 22 bps to 21.9% sequentially.

The operating margins were in line with the guided range of 21%-23%. Infosys revised its full year revenue guidance for FY20 to 10%- 10.5% from previous 9%-10% and operating margin guidance maintained at 21%-23% for FY20. The independent audit committee issued a clean chit to the Infosys management from whistleblower complaints. Healthy deal wins, higher growth in key business verticals will put Infosys back on growth trajectory. We assign 18.3x P/E multiple to its FY22E earnings of Rs. 46.8 per share which gives a target price of Rs. 860 per share, an upside of 11%.

Key Highlights

• Independent audit committee issued a clean chit: Infosys appointed audit committee on whistle blower complaints with the help of two external agencies. The audit committee does not found any wrong doing and evidence of financial impropriety or any misconduct. The committee said the complaints are without merit and issues a clean chit to the Infosys management. So the major concerns are fully addressed on corporate governance.
• Infosys management continues to see weakness in BFSI vertical and retail especially in Europe.
• Management expected some degree of softness would continue over the next 3-4 quarters. However, outlook for BFSI vertical from North America region has improved from the previous quarter.
• Infosys continued with the strong hiring, Infosys has added 6,938 employees during Q3 FY20 taking total headcount at 2, 43,454 at the end of Q3 FY20. Attrition rate has reduced to 17.6% in Q3 FY20 from 19.4% in Q2 FY20.
• During the quarter the company won seven deals in the financial services, two deals each in communication and manufacturing, one each in retail, energy and utilities.