Goldman Sachs: Rare Indian Workforce Shuffle Puts INFY in Good Position

The Indian IT sector is witnessing an oversupply of fresh talent and a maturing workforce, which is expected to offer significant cost tailwinds over the next 5 years, Goldman Sachs’ Rishi Jhunjhunwala said in a report. He added that Infosys Ltd ADR INFY seemed to be the best positioned to benefit from these favorable supply side dynamics.

Analyst Rishi Jhunjhunwala upgraded the rating for the company from Neutral to Buy, while establishing a price target of Rs1,420. He noted that the company was in the midst of a multi-year transformation and could achieve near industry-leading growth, margins, and returns in three years.

Outperform Peers

Jhunjhunwala expects Infosys to outperform its peers, with accelerating growth, rising productivity, and margin expansion. The company is on track to meeting its 2020 targets, with improved client mining, flexibility in contracting, favorable supply dynamics and focus on automation driving industry-leading growth of an estimated sales and EPS CAGR of 13 percent and 14 percent, respectively, in FY16-FY18, versus 11 percent and 12 percent estimated for the sector during the same period.

The EPS estimates for FY17, FY18 and FY19 have been raised from $66.30 to $66.93, from $73.17 to $76.70 and from $80.14 to $87.19, respectively.