Infosys Finds Support From Brokerages Even After Q4 Miss, Muted FY25 Guidance

Infosys guided for a weaker-than-expected constant-currency revenue growth guidance for the current financial year at 1–3%, while the EBIT margin guidance was at 20–22%. "Infosys' FY25 margin guidance of 20-22% is steady YoY and achievable in our view," said Akshat Agarwal in a report by Jefferies.

The IT major's shares opened in the red on the back of the earnings report card, which came out after the markets closed on Thursday.

The Q4 miss on revenue was due to a contract renegotiation and reduction in scope of a BFSI deal. The management guided for BFSI and Telecom to see higher growth in FY25 due to specific deal wins, including Liberty Global. TCV deal wins in FY24 were at an all-time high of $17.7 billion with net new of 52%.

The management also indicated that clients are looking forward to more cost optimisation deals. On valuations, the brokerages value Infosys in the range of 23–24 times, except Nirmal Bang, which values the stock at a cheaper range of 20x.

• Jefferies maintains a 'buy' rating on Infosys with the target price cut from Rs 1,740 to Rs 1,630 apiece, implying a potential upside of 14% from the previous close.

• Revenue missed estimates mainly due to contract re-negotiation and reduction in scope in a deal in the BFSI vertical.

• The management highlighted that despite weakness in discretionary spends, BFSI may fare better in FY25, and deal ramp-ups should support growth in FY25.

• Strong deal wins will provide comfort for Infosys over FY24-27 and support the CAGR of 9% for EPS over the same period.

• Infosys FY25 guidance is achievable and the margins to rise to 21.1% by FY27.

• The company may offer higher dividends vs buybacks, which should support multiples.

• Post the recent 18% correction, the stock trades at 21 times the PE, 7% below its 5-year average, which limits downside.

• CLSA has an 'outperform' rating on Infosys with the target price cut from Rs 1,706 to Rs 1,553 apiece, implying a potential upside of 8.6% from the previous close.

• FY25 constant-currency revenue-growth guidance of 1–3% weaker than CLSA expectations of 4–6% due to pressure on discretionary spends, while EBIT guidance was in line with expectations.

• Cuts FY25/26CL EPS estimates by 4% due to lower revenue growth assumption with recovery expected in FY26CL post US elections and interest rate cuts.

• As Infosys enters strong first-half seasonality and two large deal ramp-ups, CLSA says correction is overdone.

• During April–October period every year since FY20, Infosys has outperformed TCS in terms of sequential revenue growth, leading to narrower valuation discount.

• Infosys results have wider negative implications for the broader Indian IT sector with downside risks to CLSA's FY25 estimates, and it remains in an earnings downgrade cycle with cautious sector outlook.

• Citi has a 'neutral' rating on Infosys with a target price of Rs 1,550 apiece, implying a potential upside of 8.4% from the previous close.

• Deal total contract value was strong, correlation between TCV and growth is limited for the sector.

• "We believe buying in dips at around Rs 1,350."

• Headcount was down 7.5% YoY, with utilisation at 83.5%.

• The BFSI declined sharply QoQ even ignoring the one-time impact.

• Infosys Q1 FY25 should be better, given the deal ramp-ups and Infosys revenue expectations to settle around guidance.

• When comparing Infosys with TCS, Infosys is at 20% discount to TCS.

• Though the IT sector may see some pressure in the near term, Citi continues to believe in the pair trade of 'underweight' on TCS and 'overweight' on Infosys, and continue to remain cautious on the sector.

• Nirmal Bang has an 'accumulate' rating on Infosys with a target price of Rs 1,512 apiece, implying a potential upside of 5.7% from the previous close.

• Infosys' FY25 revenue growth guidance of 1–3% (organic) came in lower than Nirmal Bang's expectation of 4–7%.

• Infosys reported QoQ CC decline of 2.2% in Q4 FY24 revenue, which completely missed Nirmal Bang's estimate of 1.2% QoQ CC growth, EBIT margin was also below its estimate.

• While large-deal TCV of $17.7 billion in FY24 is the highest in its history, with net new up 135% compared to FY23, the revenue guidance has been weak.

• This could be because of longer tenure of net new order, leakage in the previously won TCV; delayed start of the projects; if the projects start, they are not ramped up in time; old projects undergoing rescoping.

• It has been cautious on the IT sector since April 2022 and continues to be so even now and says "we are in a slower-for-longer environment".

• "For FY25, we are building in revenue growth at the upper end of its guidance as we believe it is conservative in light of the strong net new TCV."

• "We have increased the discount from 10% to 15% to the target PE multiple accorded to TCS."

Shares of Infosys Ltd. declined 2.85% to Rs 1,378.75 apiece Friday after the tech giant's revenue declined in the fourth quarter and guided for a modest revenue increase in FY25.