Buy Infosys; target of Rs 1630: Prabhudas Lilladher

Prabhudas Lilladher's research report on Infosys

The revenue growth performance (-3.5% CC QoQ) was below our estimates (- 1.6% QoQ CC), attributed to lower than anticipated passthroughs, and extended furloughs. The FY26 revenue growth guidance (0-3% CC YoY) translates to a revenue CQGR of ~0.4%-1.7% CC, which is well below the quarterly run-rate (~2.3% QoQ CC) of FY25, partly aided by mega wins awarded earlier. Despite having reported a large deal TCV of USD11.6b, the absolute wins look dwarf against record high TCV of USD17.6b in FY24. The H1 has usually been strong for the company, however the elevated macro uncertainties could be detrimental to its near-term growth. Additionally, the company anticipates lower passthroughs for the full year, which further deteriorates the revenue growth prospects for FY26. However, the management claimed to have pivoted its playbook to participate not only in cloud-centric projects but also in cost-oriented areas, which should provide some respite on pausing small size discretionary deals. On margins, the company executed well, beating our estimate by 70bps in Q4, aided by Project Maximus. We expect the lower proportion of passthrough will be margin supportive in FY26 apart from Project Maximus being a catalyst to pull margins. We are baking organic revenue growth of 1.8%/6.5% CC YoY along with margin improvement of 20/40bps YoY in FY26E/FY27E, respectively.

Outlook

Given the timeline for the acquired entities remains indefinite, we are not integrating the inorganic component (full year at 40-50bps) into our numbers. We are also tweaking our PE multiple to 22x (vs 26x earlier). We Retain our “BUY” rating but reduce our TP to Rs. 1,630 (earlier Rs. 2,020).