Stock corner: Maintain ‘buy’ on Infosys, target price at Rs 955

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Published: November 8, 2019 4:11:14 AM

Nilekani said Infosys remains committed to practicing the highest level of corporate governance and its response to the recent whistleblower allegations adheres to the company’s policy.

Infosys, Nandan Nilekani, Salil Parekh, Infosys finance team, corporate governance, Infosys sharesInfosys is currently half way through the three-year transformation road map.

We attended Infosys’ analyst meet on Thursday and came away convinced that the company is set firmly on road to deliver excellent shareholder value as concerns regarding the recent whistleblower allegations were addressed succinctly by Nandan Nilekani, non-executive chairman of the board.

While the investigation is underway, the chairman’s unwavering faith in the internal finance team and in the sanctity of numbers instills immense confidence; and the company’s strategic investments in sales force, talent and localisation are largely behind and Infosys is in pole position to benefit from large deal momentum while cost optimisation levers are expected to drive earnings growth.

Maintain ‘buy’ with target price of Rs 955 (20x Q4FY21E EPS).

Whistleblower complaint: Nilekani said Infosys remains committed to practicing the highest level of corporate governance and its response to the recent whistleblower allegations adheres to the company’s policy. He also placed his faith in the credibility of Infosys’ finance team while lending full support to the CEO. While the investigation is on-going, we believe the board’s unequivocal support is encouraging.

Strategy: Infosys is currently half way through the three-year transformation road map. Taking stock of the same, Salil Parekh, CEO, highlighted the salient features of the turnaround — average cc growth of 11.4% over the past four quarters, consistent digital growth of over 30% over the period and investments in digital capabilities. The strategic direction now comprises large deal wins, margin expansion and sustained focus on helping clients navigate digital transformation.

Outlook and valuation: The best is yet to come. We believe all major investments pertaining to localisation, digital capabilities and the sales force are largely behind. While the company’s strong revenue growth already reflects some of these investments, margin should also start bearing fruit soon. The stock trades at 17.6x FY20E EPS. We maintain ‘BUY/SO’ with target price of Rs 955.

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