The Development: Infosys (INFO) has announced an Advanced Pricing Agreement(APA) with the US Internal Revenue Service (IRS), under which both companies have agreed on a methodology to allocate revenues and compute taxable income of the company’s US operations. The agreement covers a 10-year period from FY11-21.
Valuation and view
For INFO, we expect USD revenue CAGR of 8% and EPS CAGR of 7.1% over FY17-20E. Lower earnings CAGR is a function of a 90bp decline in profitability and slight strengthening of the INR.
However, we do not expect INFO’s performance to lag peers materially, especially after the company having swiftly addressed the heightened issues around governance with the appointment of Mr Nilekani to the Board and Mr Salil Parekh as the CEO.
Our price target of INR1,200 discounts forward earnings by 16x, implying an upside of 15%. Maintain Buy
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About Motilal Oswal
Motilal Oswal was founded in 1987 as a small sub-broking unit, with just two people running the show. Today it has a 2000 member team with a networth of Rs7 bn and market capitalization as of March 31, 2008 at Rs19 bn.
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