Several brokerage firms reduced their target price for Infosys stock after the IT major lowered its revenue forecast for FY25, citing unclear prospects for discretionary spending and reported weaker-than-expected Q4 earnings.

Infosys slashed its revenue guidance for FY25 to 1-3% from 4-7% a year ago. It has revised its annual revenue growth guidance five times in the previous five quarters. In January, it narrowed the growth guidance for the full year to 1.5-2%. And in September 2023, it had slashed revenue guidance to 1-2.5% from 1-3.5%, down from 4-7% for FY24.

Further, even after lowering revenue growth guidance through FY24, Infosys missed its implied Q4 guidance which raised concerns about growth predictability. The company’s consolidated revenue fell 2.3% q-o-q to Rs 37,923 crore in January-March, while the net profit rose 30.5% sequentially to Rs 7,969 crore aided by other income.

As a result, Nomura slashed the stock’s target price (TP) by Rs 100 to Rs 1,400. The revised TP is down Rs 11 from Friday’s closing at Rs 1,411.95.

Along similar lines, ICICI Securities cut Infosys’ TP by Rs 50 to Rs 1,570 but maintained its “add” rating on a cautious note as it sees “slower-than-anticipated recovery in discretionary IT spends and continued impact from one-offs”, as key risks for the IT major. 

Earlier, management and analysts were anticipating more green shoots to appear from FY25 for IT companies. However, that appears far-fetched now with the management itself sounding cautious. 

The silver lining

The only silver lining in an otherwise weak fiscal was Infosys’ highest-ever deal total contract value (TCV) of $17.6 billion. Infosys also reported a healthy large deal TCV of $4.5 billion, up 37% q-o-q. “However, the net new component at 44% is down sharply from 71% in Q3, skewed more towards renewals,” said ICICI Securities. 

Moreover, its revenue from its largest vertical, the financial services, saw a 1.4% sequential decline in constant currency terms. Meanwhile, life sciences, retail and manufacturing fell 0.2-0.3%.

However, sales from the communications vertical, the third largest after retail, expanded by 0.9% in Oct-Dec in constant currency terms.

Although, the disconnect between strong deal wins and weak FY25 revenue guidance indicates that the company will reap the benefits only in FY26. “The near-term drag from the slowdown in the discretionary business has partially taken away the benefits from the growing share of annuity business,” Motilal Oswal said in a report. 

Nonetheless, it’s not all dull and gloomy for the company as it is seeing strong traction in the generative artificial intelligence space and has added that it is increasing its market share in this sphere, without disclosing its revenue numbers or the deal size.