Infosys Q4 results preview: Seasonal weakness will reflect in modest 1.5-2.5% sequential constant-currency (c/c) revenue growth of Tier-1 ITs. We expect a slightly soft but steady 10-11% growth for Indian IT in FY2017. We expect March quarter results and management commentary to lend comfort on Street’s expectations, which in our view are already moderated, realistic and achievable. We believe 1-2% lower growth in FY2017e is captured in the new valuation band—Indian IT stocks are down to 14-18X from 15-20X. The new valuation band implies that stocks are building 10-13% growth as against 11-15% earlier, for a period of 4-7 years. We note that there is potential for growth to pick up from current levels as Indian IT’s participation in digital increases.
We estimate sequential revenue growth of 2.2% in c/c and 1.9% in $ terms for Infosys. Growth will be led by BFSI and retail verticals and the US. Ebit margin will decline by 30 bps due to (i) absence of write-back of provisions that aided margins in the December quarter and (ii) pricing pressure in new projects although it would be offset by gains from rupee depreciation. We expect solid progress in client metrics, robust TCVs and acceleration of growth in IMS. We expect FY2017e guidance of 11-13% c/c revenue growth with 24-26% Ebit margin band. Investors would keenly track management commentary on (i) demand environment in key verticals, particularly BFSI (ii) pricing outlook, growth versus margin trade-offs and progress on automation and (iii) Infosys’ positioning in the digital landscape. We have an ADD rating on the stock with a target price of Rs 1,300.