Infosys Shares After Q2 Earnings: Shares of Infosys slipped 4.5 per cent on the BSE in Friday’s intra-day trade after the IT major lowered its FY24 revenue growth guidance to 1.0-2.5 per cent in constant currency (CC) terms from 1-3.5 per cent it had guided earlier.
Following the earnings announcement on Thursday by India’s second-largest IT company, a clutch of foreign and domestic brokerages came out with their views, wherein BofA and JP Morgan retained a ‘Neutral’ stance on Infosys, and Jefferies, Goldman Sachs, Motilal Oswal and Kotak Institutional Equities held a ‘Buy’ view. Nuvama recommends a ‘Hold’ on the counter.
Infosys has cut its full-year revenue growth guidance at the upper end, now forecasting growth in the range of 1-2.5 per cent. The cut in growth guidance was an unexpected whammy for the Street as the IT major had already reduced its growth guidance significantly in the previous quarter, pulling it down to 1-3.5 per cent, down from the initial 4-7 per cent forecast.
Moreover, the company also reported a good set of earnings for the July-September period, making the decision to slash growth guidance a harder pill to digest for investors.
Despite that, the firm highlighted Infosys’ sharp revenue beat and modestly better-than-expected margin for the quarter gone by. The company also posted a record large deal value of $7.7 billion in Q2, which is 2.5 times more than that seen in the previous quarter. Meanwhile, a weaker rupee and foregoing of salary hikes so far also helped the company record a 40 basis point sequential rise in its EBIT margin for Q2.
The company had delayed wage hikes in Q2 in a bid to aid its profitability and will now roll it out from November 1.
Dragged by the dented sentiment, the New York Stock Exchange-listed American Depository Receipts (ADRs) of the information technology major also recorded a sharp slump. The ADRs of Infosys dived 6.5 percent to settle at $16.46 on October 12 following the release of the July-September earnings and a weak growth outlook.
What Should Investors Do?
JP Morgan maintains a neutral stance on the counter and recommends a price target of Rs 1,400. The near-term prospects remain weak for Infosys, the brokerage said, while dubbing the long-term prospects potentially stronger. Infosys has lower idiosyncratic risks than peers for investors focussed on FY25, the brokerage opined.
Jefferies has reiterated a buy on Infosys and raised the price target to Rs 1,650 from Rs 1,550. Strong deal wins provide comfort on FY25 growth, it said, as it slashed estimates for FY24 by 1.5 per cent. Strong deal wins provide comfort on our expectation of 10 per cent EPS CAGR over FY23-26, the brokerage noted.
Goldman Sachs has a buy view on the stock for a price target of Rs 1,620. The cut in FY24 guidance is a negative for Goldman though it did not change its FY25 outlook. The market is focusing on revenue growth and demand commentary starting CY24. It lowered revenue/EPS estimates by up to 1 per cent, but they are still 1-2 per cent ahead of consensus on FY25/FY26 EPS, it said further.
Kotak maintains a buy on Infosys and has put a price target at Rs 1,700, valuing the stock at unchanged 22X multiple on September 2025E earnings. The cut in guidance is a disappointment for this brokerage as it sees this as a testimony to weak discretionary spending. “Even as the outlook on discretionary spending is uncertain, Infosys has won a fair share of large deals to provide some visibility for FY2025E growth. We cut FY2024-26 revenue estimates by 1-2 per cent and EPS estimates by 1-2 per cent,” it said in its report.
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