Infosys Q2 Results Review - Revenue Beat Drives Guidance Upgrade; Margin Slips: Dolat Capital

Dolat Capital Report

Infosys Ltd. reported revenue of $4.9 billion up 3.1% constant currency QoQ (our estimate: of +2.4%), led by ramp-up of deals in E&U (+5.4% QoQ) and 80 bps gain from in-tech integration. However, operating profit margin remained flat at 21.1% QoQ (our estimate: 21.8%), mainly due to higher variable pay that offset efficiency gains.

The company upgraded its FY25E CC revenue growth guidance to 3.75%-4.5% range (versus 3-4% earlier) on the back of improved spending across BFSI sub-segments. OPM guidance is retained at 20-22%.

We tweak our FY25/FY26E EPS estm by -3% each, factoring in need for increased investment in S&M to drive total contract value (down 8% trailing twelve months basis).

Q2 performance/commentary suggests Infosys is set to deliver growth outperformance over TCS on FY24-FY26E basis and thus should command at-par valuation (versus five-year Avg discount of 14%). We retain our ‘Reduce’ rating on revised target price of Rs 2,020 (valued at 26 times FY27E).

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