Prabhudas Lilladher's research report on Infosys
The revenue growth performance (+2.6% CC QoQ) was above our estimates (+2.2% QoQ CC), attributed to broad-based growth in verticals and geographies. The BFS strength continued through this quarter as well, the mega deal within the segment further validates the healthy momentum in the vertical. The pockets outside BFS also reported positive growth, however the outlook remains weak on account of tariff uncertainties and geo-political tension. Despite the quarterly outperformance, the management is building caution around client sentiment and limited discretionary spends. The revised FY26 revenue growth guidance (1-3% CC YoY) translates to a revenue CQGR of ~-0.3%-1.0% CC. We believe, the revenue cannibalization through Enterprise AI and Agentic AI has been instrumental and supporting the client-centricity to drive efficiency and productivity. Additionally, the company’s wider spectrum of offering supports active participation in vendor consolidation opportunities. On margins, the company executed well at the gross level (+70bpq QoQ) despite the compensation revision in Q1. However, the continued investments in fueling S&M engine created pressure at the EBIT level (-20bps QoQ). We expect the lower proportion of passthrough will be margin supportive, however H2 weakness and deal ramp up would provide lesser room for improvement.
Outlook
We are baking revenue growth of 2.4%/6.0% CC YoY along with margin improvement of 10bps/50bps YoY in FY26E/FY27E, respectively. We retain our “ACCUMULATE” rating with TP of Rs. 1,750 (earlier Rs. 1,680).
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