Infosys Stock Research Report

Upbeat guidance; discretionary spends continue to pick up in BFSI

Infosys reported strong revenue growth of 3.1% QoQ CC in Q2FY25 led by broad-based growth across verticals. Key positive demand trends: 1) Discretionary spends continued to improve in BFSI, 2) double digit QoQ growth in pipeline of small (discretionary) deals (less than USD 50mn), 3) all large deals have component of AI-led productivity improvement. However, except BFSI, clients are largely prioritising cost optimisation over discretionary spends in other verticals. Revenue guidance has been revised to 3.75-4.5% YoY CC vs 3-4% earlier for FY25 given strong growth in Q2, but implies soft H2 factoring in seasonal weakness. We model 4.5%/8.5%/7% revenue growth and EBIT margin of 20-22% for FY25/26/27E. We continue to value Infosys on 27.5x on Q2FY26-Q1FY27E EPS of INR 78 to arrive at TP of INR 2,140. Retain ADD on upbeat guidance and continued improvement in discretionary spends in BFSI. earnings of Rs 81.4/share, resulting in a TP of Rs 2,200/share, implying a 12% upside from the CMP.

Strong revenue growth; slight miss on margins

Infosys has reported strong revenue growth of 3.1% QoQ CC vs consensus estimate of 2.9% QoQ CC led by broad-based growth across BFSI, manufacturing, energy & utilities and hi-tech. Intech acquisition contributed 80bps QoQ to revenue growth with two months of consolidation. EBIT margin at 21.1% flat sequentially was 30bps lower than consensus estimates due to higher variable pay related costs and amortisation charge. TCV at INR 2.4bn was weak, down 41% QoQ and 69% YoY on a strong base (quarter).

Discretionary spends continue to improve in BFSI

Discretionary spends continue to improve in BFSI led by capital markets, mortgages and cards and payments sub-segments. Total small deal pipeline (less than USD 50mn deals) is up in double digit QoQ. However, management re-iterated that clients continue to prioritise cost takeout and vendor consolidations vs discretionary in other verticals.

Guidance revised upwards on strong Q2 but implies weak H2

Revenue guidance has been revised to 3.75-4.5% YoY CC vs 3-4% earlier for FY25 on the back of strong growth in Q2. Revised guidance implies -0.8 to 0.2% CQGR through H2FY25, factoring in weak seasonality ahead (furloughs and lower working days) and prioritisation of cost takeouts by clients. Furloughs are expected to be in line with prior years. Retail continues to exhibit weak demand. Stressed demand in automotive vertical in Europe.