IDFC maintains ‘outperformer’ rating on Vishal Sikka’s Infosys, says management confident of achieving guidance

We believe better deal win rates have improved the outlook for banking & financial services (excluding RBS impact), telecom and utility verticals. However, H2FY17 outlook continues to be weaker than H1FY17, both in terms of revenue and margin. Nevertheless, we expect CY17 outlook to improve on better client satisfaction, strong deal wins and reduced geopolitical uncertainty. We continue to see guidance (both cc revenue and margin outlook) as conservative. Maintain Outperformer.

The management is confident of achieving FY17 constant-currency guidance. We believe muted H2FY17 growth outlook is in-line with management commentary. Also, strong year-to-date deal closure should drive recovery in growth trajectory in CY17 after bottoming out performance in Q3FY17. We continue to view FY17 guidance to be conservative.

Key strategic initiatives – improving client engagement, client mining and deal wins – have started yielding results. We believe improving large deal wins are manifestation of the success of the same strategy. We expect Infosys to deliver industry leading growth.

Management is confident of retaining operating margin in 24-25% range despite weaker growth. The company would push utilisation higher, improve role-mix, lower onsite mix, and increase automation to sustain margin despite headwinds. Moreover, we expect low-to-mid-teen revenue growth to ease off margin pressure structurally.

Infosys Technologies Limited