Shares of Infosys are bracing for a selloff, as soft March quarter results and FY24 guidance led to cut in analyst price targets, hurting investor sentiment. It was all visible in a sharp fall on its American Depository Receipt (ADR), which fell 9.78 per cent on Thursday in NYSE trade, followed by another 1.43 per cent drop on Friday.
Phillip Capital said it has cut its FY24 and FY25 profit estimates by 5-6 per cent on sharp miss in Q4. It is now forecasting dollar revenue growth of 6 per cent for FY24 and 11 per cent for FY25, with Ebit margin of 21.5 per cent for FY24 and 21.5 per cent for FY25.
"Our bear case analysis implies PAT estimate cut of 9-10 per cent. We now value Infosys at 22 times FY25 EPS (25 times earlier), 20 per cent discount to our TCS target multiple on lower growth and margins assumptions. Price target of Rs 1,590 (Rs 1,910 earlier)," it said.
Nomura India said guidance was weak for FY24 and that growth differential with TCS is set to narrow, as the foreign brokerage downgraded the stock to 'Neutral' and cut its target price to Rs 1,290.
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"Infosys’ guidance of 4-7 per cent YoY revenue growth (in cc) for FY24 (vs 13-15 per cent for FY23 at the start of the previous year) and our expectation of 6-8 per cent YoY guidance represent significant moderation in demand. Net new deal wins at $440 million in 4Q were the lowest reported number since the pandemic i.e:1QFY21. A widened FY24 revenue growth guidance band (300bp vs 200bp usually guided) represents higher uncertainty in the demand environment," Nomura India said.
Infosys now requires 1.7 per cent to 2.8 per cent compounded quarterly growth rate over the next four quarters to meet its guidance—the top end appears to be a rather tall ask, said Nuvama Institutional Equities.
"FY24E EBIT margin guidance has been also trimmed to 20–22 per cent (from 21–22% in FY23). The mid-point of the guidance will be the same as the FY23 exit margin—indicating significant cost pressures the company expects from wage hike and lower growth (offsetting the tailwinds of lower attrition, sub-con cost and supply-side challenges)," it said while suggesting a revised target of Rs 1,610 from Rs 1,900 earlier.
Nuvama said Q4 results were disappointing and sees the lower FY24 guidance as a manifestation of the overall weak macros, which might keep Infosys – and other IT stocks – under pressure in the near term.
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After missing revenue growth guidance for FY23, Infosys is likely to guide conservatively for FY24, given increased caution in spending by clients and prevailing macro uncertainties; but the asking rate at the upper-end appears to be demanding and may require support of some mega-deal closures during FY24, Emkay Global said
"Despite near-term challenges posed by the tough macro environment, we believe Infosys is well positioned to capture the growth opportunities across digital transformation, cost efficiency and consolidation-led deals over the medium term. We cut our EPS by 4.4-6.3 per cent for FY24E/25E, factoring-in the disappointing Q4. We maintain Buy on the stock, with revised target price of Rs 1,620 per share (earlier, Rs1,700) at 22 times Mar-25E EPS," Emkay said.
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