Infosys - 3QFY17 Result Update - BUY - Encouraging Performance, BFSI Strength Enthuses - Reliance Securities

Infosys delivered encouraging performance in 3QFY17, with its USD revenue coming in-line (down 1.4% qoq in USD terms & down 0.3% qoq in CC terms), while EBIT margin (+20bps qoq, 53bps above estimate) and net profit (3.8% above estimate) topped our estimates. CC revenue growth guidance was slightly revised to 8.4-8.8% (8-9% earlier) with the lower end of the band raised by 40bps while the upper end was cut by 20bps. Encouraging performance in BFSI vertical - which saw a 0.2% qoq rise in CC revenue despite losing major RBS contract - is a key positive, in our view. Energy & Utilities also saw decent 2.7% qoq growth, led by digital investments on Utilities side, which we expect to continue, going forward.

Upward Revision of Lower end of Guidance Heartening

Infosys' revenue declined by 1.4% qoq to US$ 2,551mn, while in CC terms it declined by 0.3% qoq in 3QFY17. IT services' volume grew by 0.2% qoq (9.1% yoy), while reported pricing declined by 2.2% qoq (down 1.8% qoq in CC terms). Vertical-wise, BFSI witnessed a decent 0.2% sequential growth in CC terms, which must be viewed in context of losing RBS contract, post adjustment of which, the growth would have been 1% higher. The RBS contract would have added more than 100bps to reported revenue growth. Infosys has marginally revised its guidance and now expects CC revenue growth of 8.4-8.8% (from 8-9% earlier). Upward revision of the lower end of the guidance is a positive, which indicates that Infosys envisages better revenue visibility in the near-term, as the bottom appears to have been hit.

Outlook & Valuation

At current levels, valuations seem to be reasonably inexpensive (14.1x FY18E EPS). Though the stock may not move meaningfully in the current quarter as the near-term outlook continues to remain subdued, we believe that Infosys remains on track in terms of its strategy of 'Renew and New' coupled with healthy deal wins with yoy improvement. BFSI performance was undoubtedly the biggest positive in 3QFY17 and we look forward to improved growth from 4QFY17E onwards, as the loss of RBS deal has been factored in. We introduce FY19E numbers and arrive at our TP based on the average of FY18E & FY19E EPS, assigning a PE multiple of 15x. We reiterate our BUY recommendation on the stock, with a revised Target Price of Rs1,100.

Shares of INFOSYS LTD. was last trading in BSE at Rs.955.7 as compared to the previous close of Rs. 975.15. The total number of shares traded during the day was 274905 in over 10340 trades.

The stock hit an intraday high of Rs. 965.5 and intraday low of 952.5. The net turnover during the day was Rs. 263644215.

Source : Equity Bulls

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