Infosys (INFY IN): Constant currency growth rate pick-up in 1QFY20, management ups revenue guidance for FY20

1QFY20 Results

Dated: 15th July 2019

Infosys (INFY) reported 10.6% YoY revenue growth in USD terms; highest in last 10 quarters, to USD 3,131 mn in 1QFY20. The digital business revenues (36% of the total company revenues) increased by 39% YoY to USD 1,119 mn while core business revenues declined by 0.8% YoY to USD 2,012 mn. 
• The revenues in INR terms increased by 14% YoY to Rs 2,15,390 mn. Appreciation of INR v/s USD impacted the revenue growth during the period.
• Depreciation increased by 56% YoY to Rs 6,810 mn (v/s Rs 4,360 mn in 1QFY19) and financial interest stood at Rs 400mn on account of the adoption of IFRS 16-Leases effective April 1, 2019.
• The operating margins declined by ~320 bps YoY to 20.5%. Consolidated PAT grew by 5% YoY to Rs 37,980 mn

Management Commentary

• The management has raised the revenue growth guidance for FY20E from 7.5%-9.5% to 8.5%-10% YoY. It maintained operating margins guidance of 21%-23% for FY20 v/s 22.8% in FY19.
• INFY has till date bought back shares worth Rs 59.34 bn of its previously announced share buyback of Rs 82.60 bn. 
• INFY revised Capital Allocation Policy of the Company after taking into consideration the strategic and operational cash requirements. It increased the pay-out from 70% of Free Cash Flow (FCF) to ~85% of FCF cumulatively for over a 5-year period through a combination of semi-annual dividends/share buyback / special dividends.

Consensus Estimate (Source: market screener website)

• The closing price of INFY was Rs 727/- on 15-Jul-19. It traded at 19.0x / 17.0x the consensus EPS for FY 20E / FY 21E EPS of Rs 38.2 / 42.7 respectively. 
• Consensus target price of Rs 792/- implies a PE of 18.5x on FY21E EPS of Rs 42.7.