Infosys Ltd (NSE:INFY) (BSE:500209)

Infosys Limited (Infosys) is a services company that provides business consulting, technology, engineering and outsourcing services. The Company also offers products, platforms and solutions to clients in different industries. Its business solutions include business IT services, consulting and systems integration services, products, business platforms and solutions, and cloud computing and enterprise mobility. Business IT services comprise application development and maintenance, independent validation services, infrastructure management, engineering services comprising product engineering and life cycle solutions and business process management. Consulting and systems integration services include consulting, enterprise solutions, systems integration and advanced technologies. Products, business platforms and solutions include Finacle, the company’s banking product.

Official website: www.infosys.com

Infosys’ 1QFY2016 results came in well ahead of expectations on the sales front. It posted a 4.5% qoq growth (V/s an expected 4.0% sequential growth) in USD revenues to US$2,256mn (V/s an expected US$2,246mn). Growth in Constant currency (CC) terms was around 4.4% during the period, mainly driven by a 5.4% volume growth (highest in the past 19 quarters). EBITDA margins came in below expectation at 26.2% (V/s 27.7% expected), a qoq dip of 160bp. Consequently, the PAT came in at Rs3,030cr (V/s Rs3,227cr expected), a dip of 2.2% qoq. In terms of guidance, the revenue guidance for FY2016 has been retained at 10%-12% in CC terms and has been increased to 7.2%-9.2% in USD terms. We maintain our Buy rating on the stock with a target price of Rs1,306. Quarterly highlights: Infosys posted a 4.5% qoq growth (V/s 4.0% sequential growth expected) in USD revenues to US$2,256mn (V/s US$2,246mn expected). The CC was around 4.4% during the period, mainly driven by a 5.4% volume growth. EBITDA margins came in below expectation at 26.2% (V/s 27.7% expected), a qoq dip of 160bp. While the utilization improved to 75.1% (including trainees) V/s 72.8% in 4QFY2015, wage hikes and visa cost led the margins to dip in the quarter. Consequently, the PAT came in at Rs3,030cr (V/s Rs3,227cr expected), a dip of 2.2% qoq. On the positive side, quarterly annualized attrition for the company (consolidated) came in at 19.2% in 1QFY2016 compared to 18.4% in 4QFY2015. Outlook and valuation: Company has maintained its future CC revenue growth guidance for FY2016 at 10-12%. By FY2017, the company expects to lead industry growth and reach a milestone of achieving sales of US$20bn by FY2020. We maintain our Buy rating on the stock.

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