Infosys set to top IT charts with big orders, digital play

The Infosys stock has been the best performer among the top five IT exporters in India over the past 12 months. It has gained 23% during the period.

It is also the only stock among peers to have earned double-digit returns during the period. India's second largest software exporter has guided for above-industry average revenue growth for FY17 for the first time in at least four years.

Given the momentum in winning large deals, focus on digital transformation deals, and control over operating efficiency, Infosys is expected to lead the pack in coming quarters.

A major shift in the commentary of the company's management is its forecast to beat the industry growth. Infosys expects its dollar-denominated revenue to grow 11.8-13.8% in FY17.

This is higher than the industry body Nasscom's prediction of average 10-12% growth in software exports. It would also be the fastest in five years. The expectation of a better growth emanates from the current momentum in the order book.

Infosys added six large deals worth $757 million during the March quarter. The gross number of clients increased by 89 during the period, the highest since the December 2011 quarter.

Over 12 months to March, it bagged 21 large deals together worth $2.8 billion. Compared with its peers, the dollardenominated revenue of Infosys grew at a faster rate of 9% in FY16 for the first time in at least seven years.

The company has retained the operating margin target of 24-26% for the current fiscal, which reflects that the incremental revenue will not be generated by sacrificing profitability. For investors, a turnaround in the performance of Infosys is visible at a time when its peers are showing signs of deceleration.

For instance, Tata Consultancy Services (TCS) and HCL Technologies reported single-digit growth in FY16 revenue, for the first time in six years.

Infosys will, however, need to focus on the growth in net profit as well. In FY16, at 1.9%, it lagged 4.2% growth in the net profit of TCS. At Thursday's closing price of Rs 1,210, Infosys' price-earnings (P/E) multiple is 17.6 considering FY17 expected earnings. This compares with the expected P/E of 20 for TCS.

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