Salil Parekh, Salil, Infosys CEO(Photo: Reuters)4 min read Last Updated : Jul 19 2024 | 9:42 AM IST Shares of Infosys zoomed 4.76 per cent, hitting its fresh 52-week high at Rs 1,843 per share on the BSE Sensex in Friday’s intraday deals.  Overnight as well, Infosys US-listed American depositary receipts (ADRs) ended 8.38 per cent higher at $22.50 on the NYSE overnight, marking their largest single-day gain in four years This came after Infosys trumped street estimates in its financial performance for the first quarter of financial year 2024-25 (Q1FY25) while also giving higher growth guidance than expected for FY25. The second biggest domestic information technology firm registered a 7.1 per cent year-on-year (Y-o-Y) rise in net profit at Rs 6,368 crore for the quarter under review, which was above Bloomberg’s estimate of Rs 6,248 crore.

However, sequentially, net profit dropped by 20.4 per cent. Revenue from operations also grew by 3.6 per cent Y-o-Y to Rs 39,315 crore in June quarter.

The IT major surpassed Bloomberg's estimate of around Rs 38,810 crore.   Furthermore, the company provided a revenue growth guidance of 3-4 per cent for FY25, taking over the street's expectations of 1-3 per cent. The surprise guidance for FY25 revenue was driven by three key factors – better-than-expected Q1 revenues, strong deal wins and pipeline, and the impact of in-tech acquisition for the remaining part of FY25, analysts said.  Analysts at Nuvama Institutional Equities noted that the revenue growth was boosted by 50 basis points on pricing benefit for a project.

Even adjusting for that, the growth was above the brokerage's expectations.  The company’s BFSI returned to growth after six consecutive quarters of quarterly decline led by a ramp-up of large deals and absence of one-offs in the last quarter.  The BFSI segment grew by 7.6 per cent, followed by lifesciences and manufacturing that grew by 3.3 per cent each with energy and utility and telecom also growing in the range of 1-3 per cent on a quarter on quarter (Q-o-Q) basis.  On the other hand, segments such as Hitech and retail lagged by 5 per cent and 0.3 per cent Q-o-Q, respectively.  Earnings before interest and tax margins came in at 21.1 per cent boosted by one off project and offset by higher variable pay and leave costs, analysts said During the quarter, Infosys signed 34 large deals with a total contract value (TCV) of $4.1 billion, up 79 per cent Y-o-Y and down 8.9 per cent Q-o-Q.

The company’s total headcount also reduced by 1,900 employees since the April quarter taking the total to 3,15,332 “Management appears upbeat about the recovery in growth profile, though a bit guarded too, as discretionary spends remain largely on hold.

We reckon Infosys will benefit disproportionately in FY25/26—from revival in discretionary spends—just like it suffered disproportionately (versus peers) in FY24.

We view it as one of the best ways to play the IT sector over the next few years,” Vibhor Singhal, Nikhil Choudhary, and Yukti Khemani of Nuvama wrote in a report.  The brokerage gave a ‘Buy’ rating to Infosys with a target price of Rs 2,050 per share.  Japanese brokerage firm Nomura also remained positive on Infosys and the IT sector, predicting that the earning per share (EPS) downgrade cycle is ending with Infosys as the top bet in large cap IT services. “While levers from sub-con and utilisation have likely been exhausted, there are levers from growth leverage, value-based selling, automation, and role ratio improvement, which should help offset likely headwinds like salary hikes in Q3 and transition costs of large deals, in our view,” analysts at Nomura said.  The brokerage raised its FY25-26 EPS by 2-3 per cent to factor in higher revenues and margins and its target price to Rs 1,950 valued at 27 times of FY26 EPS, from the earlier target of Rs 1,800.  On similar lines other global brokerages were also pumped by the outperformance by Infosys with Bernstein maintaining ‘Outperform’ on the company, raising target price at Rs 2100 from Rs 1650. Jefferies, too raised its target price at Rs 2040 from 1630 with a ‘Buy’ rating on Infosys.  Further, JP Morgan also remained ‘Overweight’ on the IT major with a raised target price at Rs 1,950.  At 09:36 AM, the stock of the company was trading at 2.53 per cent higher at Rs 1,803.70 per share.

In comparison, the BSE Sensex was flat, down marginally by 0.08 per cent at 81,275 levels. First Published: Jul 19 2024 | 9:41 AMIST