 "Infosys")
Shares of Infosys slipped 4 per cent to Rs 1,402.10 on the BSE in Friday’s intra-day trade after the IT major lowered its FY24 revenue growth guidance to 1.0-2.5 per cent in constant currency (CC) terms from 1-3.5 per cent it had guided earlier.
The stock of India’s second-largest software exporter by revenue was quoting at its lowest level since August 22, 2023. It was quoting lower for the third straight day, down 6 per cent during the period. At 09:25 AM; Infosys was trading 2.5 per cent lower at Rs 1,428.60, as compared to 0.5 per cent decline in the S&P BSE Sensex.
Despite strong revenue beat and deal inflows, Infosys surprisingly lowered the upper-end of its FY24 revenue growth guidance, attributing it to continued weakness in discretionary spends and a delay in mega deal scale-up to FY25, according to analysts.
Infosys’s revenue guidance is a negative surprise and likely factor in impact from these ramp downs as well as backend ended and delayed ramp up in mega deal. Deal wins continue to remain strong which provides some visibility for future revenues in the long-term, amid near-term challenges, according to ICICI Securities.
In a seasonally strong second quarter, Infosys’s net profit was Rs 6,212 crore, up 3.2 per cent from a year ago and 4.5 per cent quarter-on-quarter (Q-o-Q), which are a marginal miss to the consensus Bloomberg estimates of Rs 6,267 crore.
Revenues for Q2 grew 6.7 per cent over the year-ago period to Rs 38,994 crore, which is above the consensus Bloomberg estimates of Rs 38,504 crore. On a sequential basis, revenues grew 2.8 per cent.
Infosys’ dollar revenues grew 2.5 per cent annually and 2.3 per cent sequentially in constant currency to $4.7 billion on the back of large deals with total contract value (TCV) of $7.7 billion.
“Despite the good Q2, Infosys surprised on the downside for the third straight quarter, unprecedented in its recent history. While we see this as negative and expect near-term pressure on the share price, we had already anticipated muted FY24 revenue growth (our est. 2.6% YoY CC before results). This was visible last quarter as well, when there was a bigger divergence between guidance and expectation. Hence, we see limited damage to Infosys’s growth story from the back-to-back cuts,” Motilal Oswal Financial Services (MOFSL) said in result update.
More importantly, while macro uncertainty will lead to Infosys delivering tepid growth in FY24 (with a likely decline in Q3FY24 due to absence of pass through benefit), FY25 should gain from the inflow of multiple mega deals this year, the brokerage firm said.
With expected macro recovery over the next few quarters, MOFSL expect the company to deliver 9.0 per cent YoY CC USD revenue growth in FY25. On the other hand, we remain watchful of a potential increase in pass-through revenue contribution (7.3 per cent of 2QFY24 revenue) as the share of large deals continues to rise on account of strong inflow, the brokerage firm said.
