The Infosys FY25 guidance disappointed the street and stock is under pressure. The management expects that the IT major will see revenue growth of 1 – 3% YoY while EBIT margin may range between 20-22%. This is significantly below the analyst expectation and as a result, the stock has seen some bit of downgrade. The analysts have also highlighted the near-term challenges for the industry and the Infosys stock in particular. However, they are betting big on Infosys’ higher level of competence compared to peers.
Biswajit Maity, Sr Principal Analyst, Gartner believes that “Despite slight Q4 revenue drop Infosys’s future looks promising because of its strong customer focus and a business pipeline. Several factors have hindered their growth momentum, including prolonged sales cycles, ramp-downs, and project cancellations. We’re still optimistic about their positive growth in the upcoming quarters. Its effective strategy in securing large deals has attracted more significant contracts in recent years.”
He added that the company is capitalizing on its established client relationships to launch multiple transformation projects, focusing on cost efficiency and value creation, “Key factors attracting enterprise buyers to Infosys include competitive pricing, a readiness to manage risk and innovation. These attributes reinforce Infosys’ position as a crucial player in the industry. Moreover, Infosys has skilfully navigated challenges, showcasing a higher level of competence than many of its peers.”
The company in the analyst call highlighted that Large deal wins remain strong and that includes more cost optimization deals. However discretionary spending by clients remains muted and in select cases has been scaled down. According to Centrum, “Overall, the revenue and EBIT margin were below expectation led by near-term challenges in the demand environment as discretionary spending by clients remains weak.” Analysts at Centrum have revised their FY25E/FY26E EPS estimates for the company by “6.9%/6.1%. We maintain an ADD Rating on the stock with a revised target price of Rs 1,577 (vs Rs 1,851 earlier) at PE of 21x on FY26E. We have reduced target PE multiple from 23x to 21x to account for weak guidance for FY25E.”