CLSA expects Infosys to report strong Q4 aided by large deal wins, retains 'buy'

Brokerage firm CLSA on Wednesday retained a ‘buy’ call on Infosys on the back of accelerating growth, leverage and inexpensive valuations. The IT giant is also expected to outpace its peers in the coming quarters, CLSA said.

Infosys will report its Q4FY19 results on April 12. "We forecast 2 percent CC (constant currency) quarter-on-quarter (q-o-q) growth in Q4FY19, a 30 basis points (bps) margin slip and another $2 billion booking quarter making its strongest close in six years. We expect 9-11 percent CC YoY," it said.

A return to double-digit growth and stability under a now-tenured management team should also inspire Infosys to begin its margin recovery journey, the brokerage said, adding that Infosys is poised to become the fastest growing large IT services firm in FY20.

CLSA said Infosys is expected to report 2.2 percent QoQ US dollar revenue growth led by large deal ramp-up and margin to slip 30 bps due to forex (FX) headwinds and investments.

“Infosys large deal wins at $4.7 billion in M9FY19 (9 months ending FY19), up 116 percent YoY. Net new deals won in H2CY18 of $1.7 billion can drive current 3 percent growth acceleration, while in Q4FY19 it can add another 3 percent. This has been helped by a sharper strategy, sales investments and stronger client mining,” CLSA added.

“Infosys faces margin pressure from deal ramp-ups, wage inflation and FX. However, its strongest growth in seven years, a lack of catch-up spending in FY20 and operating leverage from scaled localisation should help it build its margin back”, the brokerage said.