Infosys stock best IT bet post Q1? Shares of Infosys zoomed 4.76 per cent, hitting its fresh 52-week high at Rs 1,843 per share on the BSE Sensex in Friday’s intraday deals. At 09.16 am, shares of Infosys were trading at Rs 1,814 on the NSE. Overnight, ADRs of Infosys, listed on the New York Stock Exchange (NYSE) also skyrocketed over 8 percent to settle at $22.25 after the company released its June quarter results.
Infosys Q1 Earnings
Infosys’ revenue from operations rose 3.7 percent quarter-on-quarter in April-June to Rs 39,315 crore. However, its consolidated net profit fell around 20 percent sequentially to Rs 6,368 crore in Q1 FY25, largely due to a high base in the previous quarter from a tax refund boost. Despite that, the bottom line as well as topline came in above the Street’s estimates.
In addition to the better-than-expected numbers, the IT services major gave investors another reason to cheer as it raised revenue growth guidance to 3-4 percent for the current fiscal. The company had previously guided for a 1-3 percent revenue growth in FY25 and analysts had expected the IT services major to stand pat on that.
What Should Investors Do Now?
Analysts at Nuvama Institutional Equities noted that the revenue growth was boosted by 50 basis points on pricing benefit for a project. Even adjusting for that, the growth was above the brokerage’s expectations.
The company’s BFSI returned to growth after six consecutive quarters of quarterly decline led by a ramp-up of large deals and the absence of one-offs in the last quarter.
The BFSI segment grew by 7.6 per cent, followed by life sciences and manufacturing that grew by 3.3 per cent each with energy and utility and telecom also growing in the range of 1-3 per cent on a quarter-on-quarter (Q-o-Q) basis.
On the other hand, segments such as Hitech and retail lagged by 5 per cent and 0.3 per cent Q-o-Q, respectively.
Earnings before interest and tax margins came in at 21.1 per cent boosted by one off project and offset by higher variable pay and leave encashment costs, analysts said.
During the quarter, Infosys signed 34 large deals with a total contract value (TCV) of $4.1 billion, up 79 per cent Y-o-Y and down 8.9 per cent Q-o-Q. The company’s total headcount also reduced by 1,900 employees since the April quarter taking the total to 3,15,332
“Management appears upbeat about the recovery in growth profile, though a bit guarded too, as discretionary spends remain largely on hold. We reckon Infosys will benefit disproportionately in FY25/26—from revival in discretionary spends—just like it suffered disproportionately (versus peers) in FY24. We view it as one of the best ways to play the IT sector over the next few years,” Vibhor Singhal, Nikhil Choudhary, and Yukti Khemani of Nuvama wrote in a report.
The brokerage gave a ‘Buy’ rating to Infosys with a target price of Rs 2,050 per share.
Japanese brokerage firm Nomura also remained positive on Infosys and the IT sector, predicting that the earning per share (EPS) downgrade cycle is ending with Infosys as the top bet in large cap IT services.
“While levers from sub-con and utilisation have likely been exhausted, there are levers from growth leverage, value-based selling, automation, and role ratio improvement, which should help offset likely headwinds like salary hikes in Q3 and transition costs of large deals, in our view,” analysts at Nomura said.
The brokerage raised its FY25-26 EPS by 2-3 per cent to factor in higher revenues and margins and its target price to Rs 1,950 valued at 27 times of FY26 EPS, from the earlier target of Rs 1,800.
Jefferies, too raised its target price at Rs 2,040 from 1,630 with a ‘Buy’ rating on Infosys. Further, JP Morgan also remained ‘Overweight’ on the IT major with a raised target price at Rs 1,950.
On the contrary, Motilal Oswal Financial Services believes the FY25 revenue growth guidance upgrade was largely driven by a one-time India business spike and inorganic impact. However, it does feel that strong deal wins should improve the company’s medium-term growth outlook.
“Infosys has maintained its margin guidance, but continues to see upside potential in the medium term, which we see as encouraging,” MOFSL stated.
