Review of Infosys Q1 Results: Delivering a Solid Blow, India's second-largest IT services company announced its Q1FY24 results, reducing its FY24 revenue guidance in constant currency (CC) from 1.0% - 3.5% compared to the previous quarter's 4% - 7%. The guidance cut was primarily due to lower-than-expected volume and discretionary spending, delayed decision-making, and setbacks in anticipated mega deals.
On Friday, the stock tumbled 9% on the BSE, closing at INR 1,311.60.
Analysts tracking the stock have mixed views, but they express concern over the significant revenue cut in the fiscal year 2014. For instance, Motilal Oswal Securities stated in their income review note, "While the guidance cut is concerning and should have a negative impact on the share price in the short term (partly due to the 11% increase in the past month), we view the miss as an operational issue rather than a structural one as the previous guidance was too optimistic in the current environment."
Brokerages mentioned that despite a reduction of 325 basis points in the guidance, they are comfortable with Infosys' current 1Q-4QE revenue growth run rate estimate, which is similar to their peers at 6% YoY CC, despite FY24E revenue growth being 2% lower.
Brokerages have set a target price of INR 1,600 (10% above yesterday's closing) and issued a "Buy" call on the stock.
In contrast, IDBI Capital has maintained a "Hold" rating on the stock. In their review, they wrote, "Infosys is grappling with adverse conditions mainly due to a slowdown in discretionary spending in its major customer base. Additionally, there will be pressure on revenue due to the weakness in retail, financial services, high-tech, and communication (constituting 60% of the portfolio)."
Despite winning robust large deals (up to $2.3 billion, 56% of net new), analysts expect delays in conversions, project ramp-downs, and ramp-ups to impact revenue growth. "With improvement in macros, the company can witness better growth in the long run. Therefore, we expect a 9.5% annual increase in FY25E revenue," they said, setting a target price of INR 1,440.
Nirmal Bang Securities is also bearish on the stock and the sector. Their Q1 result review report stated, "We have been negative on the stock and sector for the last 15 months. We are still cautious, as we believe the worst situation lies ahead of us, not behind."
The brokerage is skeptical that FY2015 revenue will be strong as expected due to the American slowdown, which is likely to return in 2024. They have reiterated their "Sell" call on Infosys with a slightly higher target price (TP) of INR 1,206, raising the valuation to June 2025 EPS while keeping the multiple at 17.4x, which is a 10% discount to TCS.
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