Buy Infosys; target of Rs 1750: Emkay

Emkay's research report on Infosys

Infosys reported a disappointing operating performance in Q4. Revenue declined 2.2% QoQ in cc terms, falling short of our expectations. Weakness was on account of persistent muted discretionary spending, along with a one-time impact of ~100bps due to re-scoping & re-negotiation with a large BFSI client. EBITM declined by 40bps QoQ to 20.1%, while adjusted for one-off impact from rescoping of a large BFSI contract, EBITM at ~21.1% fell slightly below our estimate of 21.4%. Large-deal TCV in Q4 was healthy at USD4.45bn, of which 44% is net new. Company has guided for revenue growth of 1-3% cc in FY25 (implying CQGR of 1.1-1.9%), with EBITM of 20-22%. Mgmt suggested that discretionary spending remains weak, as seen in H2FY24. Even after lowering revenue growth guidance through FY24, Infosys missed its implied Q4 guidance which raises concerns on growth predictability.

Outlook

We cut FY25-26E EPS by 6- 6.5%, building in the Q4 miss, lower guidance, and higher ETR. Continual performance miss is likely to weigh on the stock, but valuation is not demanding (~5% FCF yield). We retain BUY with TP now at Rs1,750, on 25x Mar-26E EPS.