Infosys Q1 Results Exceed Expectations, Analysts Recommend ‘Buy’ Amid Positive Growth and Optimistic Outlook
News Mania Desk/Agnibeena Ghosh/19th July 2024
Infosys, one of India’s leading IT services companies, has surpassed market expectations with its Q1 results, showcasing strong growth, optimistic commentary, and an upgraded guidance. Analysts predict that the valuation gap between Infosys and Tata Consultancy Services (TCS), currently at 15%, is likely to narrow. They have recommended a ‘Buy’ on Infosys stock, highlighting the company’s strong recovery and an attractive dividend yield of over 3%.
The company’s Q1 performance includes several positives: a beat on topline and margins, broad-based growth, margins recovery, record large deals, strong cash generation, and upgraded FY25 guidance. PhillipCapital noted that Infosys’s constant currency (CC) revenue grew by 3.6% quarter-on-quarter (QoQ), the highest in the last seven quarters, outperforming street estimates of 2.5%. Margins at 21.1% also exceeded expectations of 20.4%. Based on these strong results, PhillipCapital set a price target of Rs 2,140 for Infosys.
Historically, during the tech cycle of 2009-2016, Infosys lost market share to peers like TCS and HCL Technologies due to its weaker presence in infrastructure management services (IMS) and emerging geographies. However, analysts now argue that digitalization is a more significant catalyst for Infosys compared to IMS, which previously boosted the market caps of competitors by 9.8-14.5 times over 2009-2016.
For the June quarter, Infosys delivered numerous positives: a beat on topline and margins, broad-based growth, margin recovery, record large deals, strong cash generation, and upgraded FY25 guidance. PhillipCapital emphasized that the CC revenue grew 3.6% QoQ, the highest in the last seven quarters, and better than the street estimate of 2.5%. Margins at 21.1% also surpassed the estimate of 20.4%. They set a price target of Rs 2,140 for Infosys, expecting the valuation gap with TCS to narrow due to factors such as pricing, nearshoring, automation, subcontracting, and optimizing third-party costs.
Infosys upgraded its FY25 revenue growth guidance to 3-4% year-on-year (YoY) in constant currency (CC) terms, up from the previous 1-3%. Motilal Oswal Financial Services Ltd (MOFSL) noted that the growth outperformance during the quarter was driven by a 45% QoQ increase in India business, which was a one-off event. MOFSL set a price target of Rs 2,000 for Infosys.
Nuvama expressed that the management’s outlook was positive, anticipating a recovery in US banking, financial services (BFS), and a stronger H1 than H2. This brokerage raised its FY25E/26E EPS estimates by about 2% each and introduced FY27 estimates, rolling forward the valuation to 25 times Sep-26E PE, resulting in an increased target price of Rs 2,050. They reiterated their ‘Buy’ recommendation.
Nirmal Bang maintained its ‘Accumulate’ rating on Infosys, increasing its share price target to Rs 1,985. They valued the stock on June 2026E EPS with a multiple of 24.3 times and maintained the 10% discount to the target PE multiple accorded to TCS.
Overall, Infosys’s strong Q1 results, upgraded guidance, and positive growth outlook have led analysts to recommend buying the stock, anticipating a narrowing of the valuation gap with TCS and continued robust performance in the coming quarters.
