We reiterate our ?buy? rating on Infosys and remain constructive on the stock given reasonable valuations of ~14x FY16f and a gradually improving revenue growth trajectory. We raise our target price to R3,790 (earlier R3,770) on roll-forward and it is based on 16x 1 year forward EPS (up to June-16) of R236.6. The 16x multiple (unchanged) is a 10% discount to its historical average valuations and 20% discount to our target multiple for TCS.
In our opinion, closure of growth gaps with peers will be the key catalyst for stock performance. Although we retain our ?buy?, we continue to prefer HCL (?buy?) and TCS (?buy?) to Infosys on better revenue growth comfort and higher upside possibilities.
While there were improvements at Infosys in segments such as the US, BFSI, manufacturing and retail, we believe exceeding the top-end of its guidance will be difficult, given the steep asking rate of 3.5% CQGR over Q2-Q4. However, our thesis of likely margins surprises given material operational scope played out in Q1 with the company posting a ~30 bps beat on our estimates and 90 bps over consensus.
First quarter results came in above our expectations on Ebitda margins and PAT, but below on revenue growth. Margin increases were driven by ~340 bps q-o-q increase in utilisation to 80.1%. Key positives were an unchanged FY15 revenue growth guidance of 7-9% in line with our expectation; two consecutive quarters of $700 million deal TCV wins; and a double-digit growth in IMS.
Nomura
