Infosys order book sets pace for FY25 growth; this year's guidance cut mars robust Q2

Infosys Ltd: Shares of the coompany tanked xx percent to Rs xx after the company narrowed its revenue growth guidance for the financial year 2024. The company's shares listed in the US ended 6.5% lower overnight. Infosys trimmed the upper end of its revenue growth guidance by 100 basis points to 1-2.5% from 1-3.5% earlier. It maintained its EBIT margin guidance for the year at 20-22%.

Infosys managed to surpass the Street expectations with a sharp growth in revenue and modest margins. However, another revenue guidance cut to 1-2.5 percent for FY24 overshadowed its strong execution for the quarter. While the IT major is likely to see improved margin, revenues and strong order book in FY25, delayed macro recovery, a delay in deal closures, and pricing pressure may risk growth, according to analysts.

Infosys is well-positioned for robust EBIT growth with improved revenues and margins in FY25. However, its P/E (price-to-earnings) multiples may fall in near-term, according to Morgan Stanley. This anticipation stems from an unexpected reduction in revenue guidance and cautious commentary by the management.

While the Infosys management alluded to strong deal-wins supporting FY25E growth, the weak exit rate of FY24 would mean FY25 growth is likely to be in mid-single digits. "We continue to believe that Infosys is going through some company-specific issues , exacerbated by weak macros. We, hence, expect Infosys to underperform peers in near-to-medium term," said Nuvama Institutional Equities.

Infosys' strength in application services and ability to win large cost take-out and transformation come to the fore in recent deal wins, and these augur well for future opportunities as well. "Even as the outlook on discretionary spending is uncertain, Infosys has won a fair share of large deals to provide some visibility for FY2025E," said Kotak Securities. A robust order book is expected to provide a solid foundation for FY25, said analysts at Bernstein.

Follow our market blog for all live action

While the reduced revenue guidance is concerning and may impact short-term share prices, according to Motilal Oswal Financial Services, it had already predicted subdued FY24 revenue growth for Infosys. Consequently, the brokerage firm anticipates limited impact on Infosys' growth trajectory from the consecutive reductions. Despite anticipated macroeconomic uncertainty leading to modest FY24 growth, FY25 is expected to benefit from multiple significant deals secured this year, it noted.

With expected macro recovery over the next few quarters, the Motilal Oswal expects the company to deliver 9 percent YoY constant currency (CC) USD revenue growth in FY25. On the other hand, it remains watchful of a potential increase in pass-through revenue contribution as the share of large deals continues to rise on account of strong inflow.

Also Read | Weak guidance drags Infosys ADRs 6.5%; stock may reel under pressure today

Infosys shares fell nearly 3 percent on October 13. The stock was trading at Rs 1,427.95 on NSE at 11:45 am.