The American Depository Receipts (ADRs) of Infosys Ltd climbed 4 per cent overnight, following the second-largest IT major's December quarter earnings, hinting at a similar price action on Dalal Street when the domestic market resumes trade on Friday. While Infosys came out with muted earnings, the numbers were largely in line with Street estimates. Infosys reported decent results after back-to-back disappointments, said Nuvama Institutional Equities while noting that deal wins, while modest, had a high share of net new (71 per cent), which should boost growth for FY25 and beyond.
Motilal Oswal Securities noted that the management commentary regarding the spending environment in IT services remained unchanged, with continued pause in discretionary deals adversely affecting business. That said, Infosys views its deal pipeline and booking as robust and continues to expect improvement in client sentiment after the positive commentary by the US Fed in December 2023.
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Infosys ADRs climbed 3.98 per cent to eventually settle at $18.82. In the after-hours trading, the stock edged 0.64 per cent lower to $18.70.
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"We see Q3FY24 to be the bottom for the earnings downgrade cycle for Infosys and the sector. We have stayed positive on the sector through the year, and expect the strong deal wins of the last few quarters to gradually convert into revenue in coming quarters, even as the US macro becomes favourable. Over the last six months, Infosys has significantly underperformed peers and is now trading at attractive valuations versus TCS and HCL Tech," Nuvama said.
Motilal Oswal kept its FY24 EPS estimate unchanged but raised FY25-FY26 EPS estimates by 2 per cent. Over FY23-26, it expects a dollar revenue CAGR of 9 per cent and an rupee EPS CAGR of 14 per cent. Its target price on Infosys at Rs 4,250 implies 25 times FY26E EPS, with a 14 per cent upside potential.
The Bengaluru-based Infosys Ltd clocked a 7.3 per cent year-on-year (YoY) fall in net profit at Rs 6,106 crore for the December quarter compared with Rs 6,586 crore in the year-ago quarter last year. The profit de-growth came in line with analyst projections of 5-8 per cent de-growth. The Bengaluru-based IT firm said its sales for the quarter advanced 1.3 per cent YoY to Rs 38,821 crore from Rs 38,318 crore in the corresponding quarter last year. Analysts were expecting a flattish sales growth in rupee terms. Operating margin for the quarter came in at 20.5 per cent, down 100 basis points over the year-ago's 2.5 per cent. This was also in line with Street estimates.
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