Brokerages slash Infosys target price post Murthy shocker

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26 Aug, 2025 12:21

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Moneycontrol Bureau

Shares in Infosys slumped over 7 percent early Thursday after the stock witnessed a bevy of downgrades as brokerages took in a recent analyst call where the company said its full-year revenue guidance would likely come in at the lower range of its forecast.

On Wednesday, NR Narayana Murthy, executive chairman of the software-services exporter, said the company expects FY14 revenue to grow at about 11.5 percent and said the start of the next financial year would be reading.

This was in sharp contrast to the upbeat commentary the management had offered when it came out with its third quarter earnings in January where it said the new year looked “exciting” for the industry.

Shares in Infosys have run up about 20 percent in the past six months as investors built in optimistic growth forecasts for Indian IT companies arising from the sharp depreciation in the rupee coupled with signs of recovery in the financial-services sector in the West where many clients belong from.

CEO Shibulal told analysts that a few project ramp-downs and cancellations in the fourth quarter would weigh on fourth-quarter results.

But given the revenue growth the company clocked during the first three quarters, it now has to clock only flat growth to meet its 11.5 percent full-year growth forecast.

Analysts said that the swing in the company’s earnings and expectations is more a result of the turnaround strategy it put into place after its growth and net profits came off sharply and largely remained flat FY2009 and FY2010.

“An undesirable outcome of the turnaround effort will be continued choppy performance,” analysts at Kotak wrote. “We expect stock to correct even as some of the efforts on turnaround are yielding results.”

But as brokerages slash their target prices, it is an indication that the optimism was getting ahead of itself.

Bank of America-Merrill Lynch cut its target for the Infosys from Rs 4300 to Rs 4000, as against the current market price of about Rs 3400, indicating it still has a buy rating on the stock. Barclays revised its target marginally lower to Rs 3,960 while Deutsche Bank has a hold rating on the stock with a target price of Rs 3600.

“In a December note titled Infosys rally has played out and other notes, we had pointed out why in spite of having top class domain and service capabilities, Infosys will continue to struggle to improve its account mining,” Bhavin Shah of Equirius wrote.

“Tier-one companies are negotiating the changing demand environment by investing in alliances, centres of excellence, outcome-based engagements and other business model changes. Infosys has meanwhile focused on margins and they have certainly improved. However, continued focus on margin is beginning to backfire and is akin to putting horse before the cart,” Shah wrote.

“We believe Infosys must focus on driving sales effectiveness on a priority before it starts getting marginalized in key accounts. It is easier to get back your margins when you are growing well.”