Infosys Ltd has reported a mixed set of quarterly results with its deal wins and margins for the September quarter coming in lower than the Street expectations, following which its America depositary receipts (ADRs) fell over 1 per cent in NYSE trading overnight. Analysts, however, maintained neutral to positive view on the stock, as they see signs of rebound in discretionary demand.
"Infosys delivered a broad-based growth with early signs of a revival in discretionary spends. While revenue growth was decent, margins and TCV left much to be desired. We are cutting FY25E/26E EPS by 4.5 per cent/ 1.9 per cent, mainly due to higher tax in FY25. We continue to value Infosys at 28 times Sep-26E PE," said Nuvama Institutional Equities.
The brokerage maintained ‘Buy’ with a target price of Rs 2,250. The Infosys management raised the FY25 revenue guidance to 3.75–4.5 per cent in CC terms from 3–4 per cent, but maintained its EBIT margin guidance of 20–22 per cent. It indicated seasonality and furloughs are likely to hurt Q3 revenue growth. Infosys won 21 large deals, but overall TCV was weak at $2.4 billion, down 41.5 per cent QoQ or 68.8 per cent YoY.
"While certain sectors like BFSI have shown a marked increase in discretionary spending, especially in capital markets, mortgages and payments, retail and automotive, continue to experience softness," said Nirmal Bang Institutional Equities.
The brokerage believes that the uptick in discretionary projects in BFSI and small deal wins will translate into faster revenue conversion. Led by this, it upped its dollar revenue estimates for FY26 and FY27 by 1.1 per cent each and EPS estimates by 1.6-1.8 per cent for FY26-FY27. It suggested a ‘HOLD’ on Infosys with an increased target price of Rs 2,191.
Antique Stock Broking was not impressed with the upward revision in FY25 CC revenue growth guidance, as it was expecting 4-5 per cent target. The guidance implies muted growth for H2 at -0.5 per cent to 0.5 per cent compounded quarterly growth rate, it said.
Although the company continues to see a pick up in discretionary spends in Financial Services in the US and strong growth in manufacturing vertical, it sees continued slowness in the Retail vertical and Automotive sector in Europe, Antique said adding that H2 growth will also be impacted by furloughs.
"Infosys has reported strong H1FY25 performance and also raised the guidance for FY25 but seems a tad lower than expectations. Good momentum in Financial services in the US and broad-based growth performance augurs well for the company. We believe the company is well positioned to capture cost optimization and transformation opportunities given its strength in industry expertise and market-leading capabilities in the cloud with Cobalt and generative AI with Topaz. We have a Buy rating on the stock," said haji Nair, Research Analyst at Sharekhan.