Prabhudas Lilladher's research report on Infosys
INFY reported revenue of US$ 4.7 bn, up 3.6% QoQ CC ahead of our & consensus estimate of 2.3% QoQ CC aided by strong rebound in FS segment (+7.6% QoQ). Margins improved by 100 bps QoQ to 21.1% ahead of our & street expectations of 20.6%, majorly attributed to 4Q one offs reversal and gains from Project Maximus, which got offset by increase in variable pay & FX. The deal win at US$4.1 bn was soft vs last quarter, however the pipeline remains healthy on the large deals. The strong rebound in Q1 and in-tech integration in Q2 has led to revise the guidance upward to 3-4% in CC (vs 1-3% CC organic earlier).The revenue growth was encouraging in Q1 with a sharp recovery in Fin Services (FS), pre-dominantly driven by a couple of sub-verticals. Other verticals also contributed to the healthy growth in Q1, however the quantum of growth looks dwarf against the growth within FS. The management indicated of having witnessed some green-shoots and early signs of recovery within discretionary areas of FS. However, the commentary for other verticals was slightly discouraging amidst the adverse macros or impacted by sectorial challenges. Although Q1 recorded 34 large deal wins with sustained deal TCV, the net headcount addition declined further for the sixth-straight quarter by 1.9k QoQ. Despite the revision in guidance the ask-rate for the rest of the quarter turns out to be in the range of (0.7% - 1.3% CQGR), which again validates the management commentary of having stronger H1 vs H2. We are baking in the guidance revision and strong Q1 beat, expect revenue growth of 3.7% CC and 7.5% CC in FY25E and FY26E.
Outlook
We estimate revenues/earnings CAGR of 6.0%/9.5% over FY24-FY26E. We believe all positives are factored-in to the CMP. The stock is currently trading at 25x FY26E, we are assigning P/E of 24x to FY26E with a target price of INR 1,680. We maintain HOLD.
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