Infosys Latest Result Analysis & Implications

Infosys (Q1FY21 First Cut): Strong beat on all counts, re-rating on cards. Infosys revenue and margin performance was strong beat to the consensus and our expectation. Revenue declined in USD term 2.4% QoQ (AxisCap: -4.0%/ Cons: -5.4%), and margin expansion by 150 bp at 22.7% (AxisCap/Cons: 20.4%/20.8%) aided by INR depreciation, lower travel expense, and variable
pay. The management guided for +0 to +2% YoY growth in CC terms, compared to the consensus expectation of -2% to -4% YoY decline.

TCV of the large deal closed for the quarter was USD 1.74 bn (Q1/Q2/Q3/Q4FY20: USD 2.7 / 2.85 / 1.8 /1.65 bn), is strong given weaker activity in the first two months of the quarter.

Strong beat on all counts: Infosys' revenue grew by 1.7% QoQ to Rs 236.7bn (AxisCap: Rs 232.9 bn, Cons: Rs 229.6 bn) in Indian rupee term, whereas revenue in USD term declined by 2.4% (-2% in CC terms) QoQ to USD 3,121mn (AxisCap: USD 3,069 mn, Cons.: USD 3,026 mn). The company reported margin expansion of 150bp at 22.7% (AxisCap/Cons: 20.4%/20.8%). Adjusted EPS of Rs 9.97 (AxisCap:Rs 9.59, Cons:Rs 9.28), a declined of ~2% QoQ. Digital revenue growth 4% QoQ in CC terms to ~45% of revenue.

View – Strongest beat in the most uncertain time: Infosys' Q1FY21 performance was a strong beat on all counts despite the management managing the most uncertain time. We believe a strong deal wins, growth guidance, and strong quarterly performance could strengthen the re-rating argument for the company. We expect 6-10% earnings upgrade post Q1FY21 results. Retain our preference for the name.

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