Infosys Stock Dips Post Q4 Earnings Disappointment, Brokerages Cut Targets

Photo : Infosys

Infosys faced a setback in the stock market as its shares slipped by 2 percent following the announcement of its fourth-quarter earnings for the fiscal year ending March 31, 2024. Despite registering a revenue of Rs 37,923 crore, the IT services giant fell short of analysts' expectations, which were pegged at Rs 38,413 crore based on an average of 13 brokerage estimates. While the net profit showed a commendable growth of 30.5 percent over the previous quarter, reaching Rs 7,969 crore, it still failed to meet analysts' estimates overall.

Experts characterized the results as a "miss," despite the company's strong deal wins. The revenue shortfall was attributed to a one-time contract renegotiation with a major BFSI client, which accounted for 1 percent of the revenue. Infosys clarified that 85 percent of the contract has been retained, and no further renegotiations are expected in the coming quarters. However, this renegotiation affected the total revenue growth for the fiscal year 2024, which stood at 1.4 percent, falling below the company’s guided growth band of 1.5-2.0 percent in constant currency terms.

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The management's commentary during the earnings call indicated concerns regarding softening discretionary spends for the upcoming fiscal year. Despite securing strong deal wins, clients are showing a preference for projects focused on cost optimization and delivering upfront return on investments. Infosys highlighted that client sentiment on technology spends for FY25 remains unchanged from FY24, driven by uncertainty surrounding macroeconomic conditions. Consequently, the revenue guidance for FY25 is relatively weak, projected at 1-3 percent growth year-on-year in constant currency terms.

The acquisition of in-tech Holding GmbH, a German ER&D company with revenue of $180 million, was also announced by Infosys. However, the potential revenue contribution from this acquisition, expected to be finalized in H1FY25, has not been factored into the guidance.

Brokerages weighed in on the earnings report, maintaining their ‘buy’ and ‘neutral’ recommendations on the stock but slashing target prices. Jefferies reduced its estimations by 7-8 percent to account for the earnings miss. Motilal Oswal and Nuvama Institutional Equities expressed confidence in Infosys's long-term prospects, expecting growth to pick up as discretionary spends revive in H2FY25. However, they cautioned that the stock might underperform peers such as TCS until then.

Citi advised investors to accumulate Infosys shares on dips, with a target multiple reduced to 24x given the lower growth outlook. Despite the near-term challenges, analysts remain optimistic about Infosys's position as a key beneficiary of the anticipated acceleration in IT spending in the medium term.