Infosys' return on equity at 10-year high despite lower margins: Jefferies

The company expects revenue in FY24 to grow between 4 and 7 percent. The Street expected the number to be between 6 and 8 percent on a constant currency basis. Representative Image

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26 Aug, 2025 12:21

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Foreign broking firms Morgan Stanley and Jefferies remain optimistic on Infosys' growth prospects, despite the IT services company's disappointing March quarter numbers. The optimism stems from the company's FY23 annual report wherein the company has said that it expects digital to continue driving IT spends in the longer term, even though cost-efficiency programmes are driving spends in the near term.

Morgan Stanley has an Overweight rating on the stock, with a target price target of Rs 1,475. Jeffries has a Buy rating, with a target price set at Rs 1,570.

"Infosys expects accelerated demand from spends on cloud, Generative AI,
Cybersecurity, IoT, and immersive technologies. Infosys' investments in digital position it well to gain from these opportunities," according to Jefferies.

The company's employee pyramid has remained steady year-on-year, primarily due to lower fresher hiring rates. However, high attrition among mid-level employees affected margins and the trend could sustain going forward.

Also Read: Ex-TCS CEO Rajesh Gopinathan earned lesser than Infosys and Wipro CEOs in FY23

The financials

That said, Infosys' return on equity improved by nearly 300 basis points in FY23 to 32 percent. This was led by higher asset turnover and lower cash on the balance sheet, noted Jefferies.

Free cash flow conversion worsened year-on-year but has normalised to pre-Covid levels, it added.

In the fourth quarter, Infosys reported a 7.8 percent on-year rise in its consolidated net profit at Rs 6,128 crore while revenue rose 16 percent YoY to Rs 37,441 crore. Both numbers missed Street estimates.

The company expects revenue in FY24 to grow between 4 and 7 percent. The Street expected the number to be between 6 and 8 percent on a constant currency basis. The stock has 29 “buy” calls, nine “hold” and an equal number of “sell” calls.

At 11:45 am, Infosys shares were quoting at Rs 1,285.10 on the NSE, higher by 0.48 percent from previous close. On June 6, the shares had taken a knock after American firm EPAM cut revenue guidance midway through June quarter.

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