India
NRI
Pick Of the Week – Infosys Limited
Every week, we recommend a well researched fundamental equity investment as our ‘Pick of the Week’. Handpicked after a thorough analysis of the business, industry, and economy, this recommendation has a higher potential of earning good returns over a horizon of 6 - 9 months.
Investment Rationale
• Strong revenue growth, healthy deal wins in Q3FY20: Infosys Limited reported strong top line growth and healthy deal wins in Q3FY20. Infosys posted revenue growth of 9.5% on YoY basis and 1% on QoQ bas is in constant currency terms. Infosys reported steady deal wins (14 large deals) with a TCV of $1.8bn despite Q3 being a seasonally weak quarter. Operating margins have sequentially improved by 22 bps to 21.9%. The operating margins were in line with the guided range of 21%-23%.
• Digital Strong broad based growth across verticals: Infosys posted strong broad based growth across verticals. In Q3FY20, Manufacturing and hi-tech showed strong growth of 3% QoQ and 1% QoQ respectively, Communication vertical also showed growth of 0.3% QoQ, Life sciences showed robust growth of 5.8%QoQ, Financial services declined marginally by 0.2% QoQ. Geography-wise, North America grew by 10.1% YoY, Europe grew by 12% YoY, and Indian business also showed sturdy growth of 18% YoY, while ROW showed marginal growth of 0.2% YoY. Digital business reported a robust growth of 40% on YoY basis in Q3FY20, while core business has declined by 5% sequentially. Digital contribution to the top line remained healthy at 40.6% with Cloud, IoT and Cyber data analytics witnessing strong growth.
• Independent audit committee issued a clean chit: Infosys appointed audit committee on whistleblower complaints with the help of two external agencies. The audit committee did not find any evidence of wrongdoing and financial impropriety or any misconduct. The committee said the complaints are without merit and issued a clean chit to the Infosys management. So the major corporate governance concerns have been fully addressed.
• Healthy hiring for timely delivery: Infosys continued with strong hiring trends, it has added 6,938 employees during Q3 FY20 taking the total headcount to 2,43,454 at the end of Q3FY20. The attrition rate has reduced to 17.6% in Q3FY20 from 19.4% in Q2FY20.
We Recommend
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CMP
Rs. 780
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Target Price
Rs. 860
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Potential Upside
10%
* Note: Stock Investment horizon approx. 6-9 months. CMP as on 1st February, 2020.
Please refer the research report disclaimer before making an investment decision.