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Axis Securities Report
In Q3 FY24, Infosys Ltd. reported revenue of Rs 38,821 crore, down 0.4% QoQ and 1.3% QoQ (in constant currency terms) which stood below our expectations.
The company’s operating profit, too, stood below our expectations at Rs 7,961 crore, reporting a de-growth of 3.8% QoQ.
Its operating margins declined 100 bps to 20.5%, which was largely on account of higher operating expenses and a wage hike during the quarter.
Furthermore, its net profit for Q3 FY24 stood at Rs 6,106 crore, registering a de-growth of 1.7% QoQ.
Outlook
From a near-term perspective, we believe global uncertainties and economic slowdown may impact the automation spend and result in delays in investment decisions in North America.
Infosys earns the majority of its revenue ( ~40%) from North America. Moreover, IT services are expected to witness lower demand in the near term.
As compared to North America, Europe is expected to have resilient demand and positive investment to continue. The demand scenario is likely to regain its momentum as ongoing uncertainties settle down in the next two to three quarters, post which the company expects consistent deal wins.
Valuation and recommendation
We recommend a 'Sell' rating on the stock and assign an 18 times price/earning multiple to its FY26E earnings of Rs 80/share to arrive at a target price of Rs 1,425/share, implying a downside of 5% from the current market price.
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