Although the company reduced its revenue guidance for FY24, it retained its operating margin forecast. Yet it stated in its exchange filing that its solid deal pipeline and strong major deal closes placed it well for future development.
The company in an exchange filing said that revenue guidance for FY24 has been revised to 1.0% – 3.5%, while operating margin guidance is left unchanged at 20% to 22%.
“We had a solid Q1 with a growth of 4.2% and large deals of $2.3 billion which helps us to set a strong foundation for future growth. Our generative AI capabilities are expanding well, with 80 active client projects. Topaz, our comprehensive AI offering, is resonating well with clients. We see this being transformative for clients and enhancing our overall service portfolio” said Salil Parekh, CEO and MD.
IT services major on Thursday reported an 11% year-on-year rise in its consolidated net profit (attributable to owners of the company) for the fiscal’s first quarter ended June (Q1FY24) to ₹5,945 crore. The company had reported a profit of ₹5,360 crore in the year-ago period. Sequentially, the consolidated net profit was down 2.9%.
The IT company’s consolidated revenue from operations stood at ₹37,933 crores during the quarter ended June from ₹34,470 crore in Q1FY23. Sequentially, up 1.3% from ₹37,441 crore in Q4FY23.
Infosys Q1 Results: Net profit rises 11% on year to ₹5,945 crore
On Friday’s session, Infosys shares slumped over 8%. According to analysts, post results and especially after the guidance the stock prices have seen a huge gap down opening in today’s session.
As of now one should have a wait and watch approach for this counter where the next support is around 1250 that can be considered as buying zone on the flip side 1430 – 1450 the bearish gap will act as resistance. This has been an underperformer that may continue, traders are advised to focus on other counters from this space that has given spectacular moves recently post their results.
Why Infosys shares nosedived 10% after Q1 results 2023 — explained
Many brokerages reduced the stock’s rating and future earnings per share (EPS) estimates in response to the IT major’s Q1FY24 results and outlook.
What do brokerages say?
Nuvama Institutional Equities
According to the brokerage’s analysis, Infosys’ Q1FY24 revenue of $4,617 million was low compared to its/street’s forecast of +0.8% constant currency (CC) QoQ. With a TCV of $2.3 billion, EBIT margin of 20.8% is also reasonable.
However, the brokerage claims that the biggest surprise is the steep reduction in FY24 sales growth projection from 4-7% to 1-3.5%.
“We are cutting FY24/25E EPS by 6.6%/6.3% on lower growth/margins (our second successive cut). This along with a reduction in target valuation to 20x FY25E PE (from 22x) yields a target price of ₹1,380 (earlier ₹1,610); downgrade to ‘hold’.
Infosys’s successive disappointment on guidance is a shocker, particularly given it is accompanied by strong deal flow and in-line results. We believe most of problems faced by Infosys are company-specific, and not to be seen as a read-across for the sector. We, hence, expect Infosys to underperform peers in near-to-medium term,” said the brokerage.
Axis Securities
The brokerage in its report said that in Q1FY24, the company reported revenue of ₹37,993 crore, up 1.3% QoQ and 1.0% QoQ (in CC terms) which stood in line with its expectations. The company’s operating profit, too, stood in line with their expectations at ₹7,891 Cr, reporting a growth of 0.2% QoQ.
The company’s operating margins, remained flat at 20.8%, largely led by lower operating expenses and a favourable currency mix during the quarter. Furthermore, its net profit for Q1FY24 stood at ₹5,945 Cr, registering a de-growth of 2.8% QoQ.
“From a near-term perspective, we believe global uncertainties and economic slowdown may impact the automation spend and result in delays in investment decisions in North America from where the company earns its majority of the revenue ( about 40%). IT services are expected to have lower demand in the near term. As compared to North America, Europe is expected to have resilient demand and positive investment to continue.
As these uncertainties will settle down in the next two to three quarters, the demand scenario will gain momentum once again and would be backed by consistent deal wins.
We recommend a ‘sell’ rating on the stock and assign a 20x P/E multiple to its FY25E earnings of ₹63.7/share to arrive at a target price of ₹1,300/share, implying a downside of 10% from the current market price (CMP),” said the brokerage.
“Infosys has sharply lowered its FY24 revenue growth guidance to 1.0-3.5% YoY CC from 4.0-7.0% YoY CC earlier, on account of lower-than-expected volume and discretionary spending, delays in decision-making and push-outs in anticipated mega deals. We expect FY24 revenue growth at 2.6% CC, slightly above the mid-point of the guidance band.
Despite near-term weakness, we expect the company to be a key beneficiary of the acceleration in IT spends in the medium term. Based on our revised estimates, the stock is currently trading at 20.5x FY25E EPS. We value the stock at 22.5x FY25E EPS, implying a target price of ₹1,600 and recommend ‘buy’ for the stock,” said the brokerage.
Further, Infosys was downgraded by global brokerage, Macquarie to an underperform rating, citing disappointment on project wins that suggest $1.5 billion of the deal is partially a renewal.
Infosys has an underweight rating from JP Morgan, which claims that the company’s unexpected guidance reduction delivers a welcome dose of realism that should also be applied to valuations.
Infosys has a buy recommendation from Jefferies, which expects 10% EPS CAGR between FY23 and FY26 and sees little risks of future earnings cuts.
The revenue guidance drop for FY24 overshadows in-line performance in Q1FY24, according to Nomura, which downgrades Infosys to reduce rating and lowers target.
Infosys ADR plunges 9% in pre-market session on NYSE; here’s why
Know your inner investor
Do you have the nerves of steel or do you get insomniac over your investments? Let’s define your investment approach.
Download The Mint News App to get Daily Market Updates.
Updated: 21 Jul 2023, 03:15 PM IST