Infosys Q2FY18 results: Status quo; Retain REDUCE | IndiaNotes.com
Infosys (INFO) reported mixed 2QFY18 earnings with growth (2.9% vs. 3.6% EE) modestly below EE but EBITM coming in above estimates (24.2% vs. 23.5%). Growth was broad-based across verticals and geos, but was offset by India weakness.
Consolidated IT services revenue growth (3% qoq) was driven by volumes (1.6% qoq; onsite/offshore -0.7%/2.6%) and pricing (1.4% qoq; onsite/offshore 1.9%/2.7%).
Management commentary suggests instances of spending cuts in FSI, insourcing and cost optimisation in manufacturing, and furloghs in retail customers led to a cut in guidance. While we retain our pre-1Q FY18E US$ revenue growth estimate (6.8%), we raise our EPS estimate to accommodate 2Q margin beat. We also retain REDUCE (Rs 938 TP, 14x Dec‟18 TTM EPS of Rs 67 vs. Rs. 919, 14x Sep‟18 TTM EPS of Rs 65.6) in absence of meaningful earnings triggers.
Retain REDUCE; buyback sole near-term trigger: Growth has moderated significantly relative to the start of FY18 led by weakness in select verticals, client-specific challenges, and management reorganisation. Though EBITM beat led by operational efficiency (utilisation improvement) leads to an increase in our EPS estimates, absence of meaningful triggers continues to influence our REDUCE rating.
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