Infosys Ltd Stock Research Report

Broad-based Growth; Management Upgrades Guidance for FY25

Est. vs. Actual for Q2FY25: Revenue – Beat ; EBITDA Margin – Beat; PAT –
Beat ; Deal Wins – Beat

Change in Estimates post Q2FY25
FY25E/FY26E: Revenue 1%/1%; EBITDA 0%/0%; PAT 1%/1%

Recommendation Rationale

• Revenue growth momentum impacted: The company saw a strong recovery in the BFSI and other verticals, and management anticipates continued demand momentum for Gen AI, along with enhanced client engagement. This suggests the potential for improved realizations in the coming periods.
• Robust Deal wins: The company’s TCV remained robust and exceeded our expectations, with deal wins totalling $2.4 Bn in Q2FY25.
• Green shoots in North America: The management remains cautious about discretionary spends, though some improvements in client engagement have been observed.

Sector Outlook: Positive

Company Outlook & Guidance: The management has revised its revenue growth guidance upwards to 3.5%-4.5% (in CC terms) for FY25 while maintaining stable margin guidance in the range of 20%-22%.

Current Valuation: 24x FY26E P/E; Earlier Valuation: 24x FY26E

Current TP: 2,200/share (Earlier TP: Rs 1,950/share)

Recommendation: In light of improved medium-term demand from a majority of verticals along with some improvement in utilizations, we expect Infosys to report better growth in FY25. Hence, we recommend a BUY rating on the stock.

Infosys Ltd Stock Research Report

Financial Performance

In Q2FY25, Infosys Ltd (Infy) reported revenue of Rs 40,986 Cr, up 4.2% QoQ and 3.3% QoQ in US$ terms, exceeding our expectations. The company’s operating profit also surpassed our estimates, standing at Rs 8,649 Cr, with a QoQ growth of 1%. Operating margins remained stable at 21.1%, driven by higher utilization, lower onsite expenses, and reduced Subcon costs. Additionally, net profit for Q2FY25 was Rs 6,506 Cr, reflecting a 2.2% QoQ growth and a 4.7% YoY increase.

Outlook

From a near-term perspective, global uncertainties are expected to ease, and macroeconomic conditions are likely to improve. While we anticipate recovery in the North American region, Europe is also expected to demonstrate resilient demand, with continued investments in the region. The demand scenario is projected to regain momentum as the current uncertainties subside over the next two to three quarters, after which the company expects consistent deal wins.

Valuation & Recommendation

In light of the improving macroeconomic outlook, stronger client engagement, and upgraded guidance, we upgrade our recommendation to a BUY. We assign a 27x P/E multiple to the company’s FY26E earnings of Rs 81.4/share, resulting in a TP of Rs 2,200/share, implying a 12% upside from the CMP.

Key Financials (Consolidated)