Q1FY20: Strong revenue growth, Healthy deal wins Infosys Ltd. reported strong growth in top line and healthy deal wins for the period of Q1FY20. Infosys posted revenue growth of 10.6% on YoY basis and 2.3% sequential growth in constant currency terms for the period of Q1FY20. Deal wins came in strong with TCV of $2.7bn; it remained healthy for yet another quarter. However operating margins have declined by 93 bps to 20.5% sequentially. Infosys revised its full year revenue guidance for FY20 to 8.5%- 10.0% from previous 7.5%-9.5% and operating margin guidance is also maintained at 21%-23% for FY20. Healthy deal wins, higher growth in key business verticals will put Infosys back on growth trajectory. We assign 20x P/E multiple to its FY21E earnings of Rs. 43.0 per share which gives a target price of Rs. 860 per share, an upside of 10%.
Valuation & Outlook: Healthy quarter performance, digital growth, visibility from deal pipeline and improving margin trajectory lead us to maintain our positive stance on Infosys. Further, we believe this would narrow the revenue and margin gap with TCS. However, recent run up in stock prompt us to downgrade the stock from Buy to HOLD with a target price of 845 (based on 19x FY21E EPS).