Infosys, India’s second-largest IT company, grabbed the spotlight on D-Street on Friday following the release of its quarterly performance for the October-December period. The results, in line with analysts’ expectations, triggered a robust rally in Infosys shares, marking the most significant single-day gain since July 16, 2020.
Investors are optimistic that the third quarter marks the end of the earnings downgrade cycle for Infosys, especially as the US macroeconomic conditions appear favorable in CY 2024.
The company adjusted its FY24 revenue growth guidance to 1.5% to 2% in constant currency terms, a slight modification from the earlier 1% to 2.5% projection in the September quarter. Infosys’ shares listed in the US experienced a 4% surge overnight.
In its December quarter results, Infosys narrowed the upper end of the guided revenue by 50 basis points to 2% and raised the lower end of the growth guidance to 1.5% from the previous 1%. Despite these adjustments, the Bengaluru-based IT major maintained its operating margin guidance at 20-22% for FY24.
Infosys CEO Salil Parekh emphasized that while the FY24 guidance has been tightened, the outlook remains consistent.
The quarter showcased deal wins amounting to $3.2 billion, with 71% categorized as net new deals. Notably, Infosys terminated a Memorandum of Understanding (MoU) with a global client, which had a revenue potential of $1.5 billion.
Brokerage firm Jefferies maintained its buy rating on Infosys, setting a price target of Rs 1,740. Despite the ongoing headcount decline, Jefferies anticipates a growth pick-up, adjusting its estimates by up to 2% to account for the beat. The firm is comforted by Infosys’ strong deal wins, expecting a 13% EPS CAGR over FY24 to FY26.
Bernstein, in its note, highlighted that the December quarter was more about setting up for FY25, foreseeing growth acceleration in FY25 as macroeconomic conditions recover. The firm has an “Outperform” call on Infosys stock, with a target of Rs 1,740 per share.
Nomura, while acknowledging good execution and net new deal wins in the December quarter, remains neutral on Infosys with a price target of Rs 1,500. The brokerage noted the absence of signs indicating a revival in discretionary demand.