Infosys share price targets, Q3 hits & misses & fundamental outlook

Infosys Ltd impressed Dalal Street analysts with its Q3 execution, with margins and sequential revenue in constant currency (CC) terms beating Street estimates, and the revision in FY24 revenue guidance coming in broadly in line with analyst estimates. The net new deal wins for the quarter was a positive surprise. Still analysts are mixed over whether the worst might be behind for the second largest IT major, as there were no signs of discretionary demand revival as yet.

Analysts said weakness was visible in parts of Financial, Communication, Retail and Hi-Tech verticals, partially compensated by better demand in Manufacturing, ENU and Life Sciences verticals.

"Adjusted for the McCamish cyber security incident, Q3FY24 was better than what was widely feared by the Street, especially on the margin front. But revenue growth continues to remain muted. Just like its larger peer TCS, Infosys indicated a status quo on demand conditions and did not indicate a material upturn in 4QFY24," said Nirmal Bang Institutional Equities.

This brokerage has been negative on Infosys and the sector since April 2022 it continued to be cautious as it feels the worst on the macro front is ahead of us.

Nomura India said Infosys beat Street expectations as its December quarter revenue declined 1 per cent sequentially in constant currency (cc) terms compared with the consensus expectation of a 1.5 per cent QoQ decline. The EBIT margin at 20.5 per cent, it said, was in line with the Street estimate. The deal wins $3.2 billion were down 3 per cent YoY but the net new component in deal wins at $2.3 billion was up 71 per cent, which impressed analysts.

Infosys tightened its revenue growth guidance band to 1.5-2 per cent in CC terms, which implies minus 1 per cent to nil sequential CC revenue growth for the fourth quarter, Nomura suggested.

Read more: Infosys Q3 results: Profit down 7.3%, FY24 guidance revised; management commentary, key takeaways

"We tweak our FY24-26F EPS by 1 per cent. Our FY25-26F EPS estimates are 4-5 per cent lower than the Street," it said while suggesting a target of Rs 1,500 on the stock.

Motilal Oswal said the Q3 results were overall better than its estimates and that while the FY24 guidance has been narrowed, it remained in line with its expectations.

"Despite near-term weakness, we expect INFO to be a key beneficiary of the acceleration in IT spending in the medium term. Based on our revised estimates, the stock is currently trading at 19x FY26E EPS. We value the stock at 22x FY26E EPS, implying a target of Rs 1,750," the brokerage said.

Also read: Infosys ADRs climb 4% overnight post Q3 results. Is the worst behind for IT major?

Kotak Institutional Equities has in fact cut its FY2025 estimates by 2.5 per cent to factor in sluggish discretionary spending. It has reduced its fair value on the stock to Rs 1,800 from Rs1,870 earlier. Choice Broking suggested a target of Rs 1,625.

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.

"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.