Infosys shares after Q2 earnings: Shares of Infosys fell 4.5 percent on the BSE in intraday trade on Friday after the IT giant cut its FY24 revenue growth forecast to 1.0-2.5 percent in constant currency (CC ), from 1-3.5 percent that he had previously expected.
Following Thursday’s earnings announcement by India’s second-largest IT company, a group of foreign and domestic brokers came out with their views, with BofA and JP Morgan maintaining a ‘neutral’ stance on Infosys, and Jefferies, Goldman Sachs, Motilal Oswal and Kotak Institutional Equities had a ‘buy’ stance. Nuvama recommends a ‘Hold’ on the counter.
Infosys has lowered full-year revenue growth expectations at the higher end and now predicts growth between 1 and 2.5 percent. The cut in growth expectations was an unexpected blow to The Street, as the IT giant had already significantly lowered its growth expectations in the previous quarter, to 1-3.5 percent, down from the initial forecast of 4-7 percent .
Moreover, the company also reported good earnings figures for the July-September period, making the decision to lower growth expectations a harder pill to swallow for investors.
Still, the company highlighted Infosys’ sharp revenue growth and modestly better-than-expected margin for the quarter. The company also recorded a record value of $7.7 billion in the second quarter, which is 2.5 times more than the previous quarter. Meanwhile, a weaker rupee and lack of salary hikes so far also helped the company deliver a 40 basis point sequential EBIT margin increase for the second quarter.
The company had postponed wage increases in the second quarter in a bid to boost profitability and will now roll them out from November 1.
Dragged by the dented sentiment, the major information technology company’s New York Stock Exchange-listed American Depository Receipts (ADRs) also registered a sharp decline. Infosys ADRs fell 6.5 per cent to settle at $16.46 on October 12, following the release of July-September numbers and weak growth prospects.
What should investors do?
JP Morgan maintains a neutral stance on the counter and recommends a price target of Rs 1,400. The short-term outlook remains weak for Infosys, the broker said, while the long-term outlook is said to be potentially stronger. Infosys has lower idiosyncratic risks than peers for investors targeting FY25, the brokerage opined.
Jefferies has reiterated a buy on Infosys and raised the price target to Rs 1,650 from Rs 1,550. Strong deals provide comfort for FY25 growth as FY24 estimates have been cut by 1.5 percent. Strong deals provide comfort to our expectation of a 10 percent CAGR per share over FY23-26, the brokerage said.
Goldman Sachs has a buy view on the stock at a price target of Rs 1,620. The reduction in FY24 guidance is negative for Goldman, although it has not changed the FY25 outlook. The market will focus on revenue growth and demand commentary from CY24 onwards. It lowered revenue/EPS estimates by up to 1 percent, but these are still 1-2 percent ahead of consensus FY25/26 EPS, the report said.
Kotak maintains a buy on Infosys and has set a price target at Rs 1,700, valuing the stock at an unchanged 22x multiple on September 2025 earnings. The cut in guidance is a disappointment for this broker as it views this as a evidence of weak discretionary spending. “While the outlook for discretionary spend is uncertain, Infosys has secured a fair share of big deals to provide some visibility for growth in FY 2025. We have lowered revenue estimates for FY 2024-26 by 1 to 2 percent and reduced earnings per share by 1 to 2 percent,” the report said.
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