Maintain BUY on Infosys - Growth certainty on explosive deal wins - HDFC Securities

Ms. Amit Chandra, Institutional Research Analyst, HDFC Securities & Mr. Apurva Prasad, Institutional Research Analyst, HDFC Securities

We maintain BUY on Infosys (INFY), following a strong 3Q print (best 3Q in 8 years) and the highest-ever deal wins translating into growth leadership in tier-1 IT. TCV of large deal wins (including largest-ever Daimler deal) stood at USD 7.1bn (net new TCV at USD 5.2bn). Growth in 3Q was led by NorthAm- BFSI (Vanguard ramp-up), E&U, Life sciences vertical and NorthAm- Manufacturing/Communications. INFY scores high on growth visibility based on a staggering 3.5x growth in 9MFY21 net-new large deal TCV over the prior period. Growth ahead is predicated on (1) strong momentum in BFSI (8 large deal wins), (2) 4-4-3 large deal wins in Manufacturing, Communications, E&U verticals, (3) consolidation opportunities and continued growth in digital, driven by improving competitive advantage led by Infosys Cobalt and strong supply-side metrics (80% of digital fulfilment over past 3 years via re- skilling). Our target price is Rs 1,580 at 25x Dec-22E (~10% discount to TCS and 24x earlier), supported by 20% EPS CAGR over FY21-23E.

3QFY21 highlights: (1) INFY delivered its best sequential growth in the past eight years at 5.3% QoQ CC (6.6% YoY CC). (2) EBIT margin stood at 25.4%, remained flat (+7bps QoQ), supported by operating levers of higher utilisation & offshore mix (+100bps), FX tailwind (+20bps), offset by transition & re-badging (-50bps), employee promotion (-20bps) and higher sub-con cost (-50bps). (3) Wage increase effective 4QFY21 will impact margins. (4) Out of the 22 large deals wins, 8 were in BFSI, 4 in Manufacturing, 4 in E&U, 3 in Communication and 1 each in Retail/Hi- tech/Other vertical. By region, 13 deal in US, 7 in EU and 2 in ROW. (5) Utilisation stood at an all-time high of 86.3% and management is targeting 82-85%.

Outlook: INFY's growth leadership is backed by large deal wins which is key positive for revenue visibility in the near term. We have factored in USD revenue growth of 7%, 16.1%, 12.9% for FY21/22/23E with 4QFY21 at 3.5% QoQ. EBIT margin factored in at 23.9% for 4Q and 24.1/24.5% for FY22/23E. Valuations are at 24.8/21.2x (~14% discount to TCS) with FY21-23E EPS CAGR at 20%.

Shares of INFOSYS LTD. was last trading in BSE at Rs.1370.6 as compared to the previous close of Rs. 1387.7. The total number of shares traded during the day was 2734302 in over 62933 trades.

The stock hit an intraday high of Rs. 1384.5 and intraday low of 1318.05. The net turnover during the day was Rs. 3730981293.

Source : Equity Bulls

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