Outlook & Valuation
We expect sentiment on the stock to get affected owing to lower margin guidance and management’s intention to sell Skava and Panaya, acquired under the erstwhile Management. However, we believe this is part of the new CEO’s strategy to focus purely on services, away from the ‘productised business model’. Consequently, we believe this is more a case of the Infosys CEO implementing strategy to drive growth rather than looking back into past issues. We maintain our positive stance on the IT sector, aided by good IT budget growth (>6% according to Gartner, fastest growth since 2007), improvement in the US economy, strong digital growth moving the needle on total growth, with Infosys-specific factors also including decent underlying growth in key verticals and return of cash to shareholders. Infosys trades at ~4% dividend yield, while a potential buy back could drive RoE and EPS. Hence, we retain our BUY rating on the stock, with a revised TP of Rs1,290 (Rs1,240), as we slightly raise FY20E earnings on growth leverage, even as we cut FY19E EPS 4% on higher business related investments.