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* INFO reported 1QFY24 revenue at USD4.62b, up 1.0% QoQ in CC terms and in line with our estimate. Large deal TCV stood at USD2.3b, up 11% QoQ. It won a USD2.0b deal in Jul’23 (to be included in 2Q). However, in a negative surprise, the company has sharply lowered its FY24 revenue growth guidance to 1.0-3.5% YoY CC from 4.0-7.0% YoY CC earlier. It has attributed the guidance cut to lower-than-expected volume and discretionary spends, delays in decision-making and push-outs in anticipated mega deals.

* EBIT margin declined 20bp to 20.8% (30bp miss), due to higher employee expenses vs. efficiency gains. Despite the steep revenue guidance cut, INFO has maintained its FY24 EBIT margin guidance at 20-22%.

* While the guidance cut is concerning and should be negative for the share price in the short term (partially due to 11% gain in last one month), we view the miss as more of a perception issue rather than an operational one as the earlier guidance was too optimistic in the current environment. Hence, we lower our below-guidance FY24 estimates (earlier at 3.8% YoY CC) by 120bp despite the 325bp cut in guidance at the mid-point, to take into account the weaker demand commentary and project delays. We take comfort in the current 1Q-4QE revenue growth run rate estimate for INFO, which is similar to its peers (Exhibit 1), despite lower FY24E revenue growth of 2.6% YoY CC.

* Given continued strength in the deal pipeline with few mega deals and an expected macro recovery over the next few quarters, we continue to expect double-digit growth in FY25. We expect a 7.7% CAGR in USD revenue over FY23-25.

* Weak revenue should prevent the company from benefiting from the easing supply environment. We expect FY24 EBIT margins at 20.5%, down 60bp YoY. With an improvement in FY25 EBIT margin to 21.5%, INFO should deliver a 10.2% CAGR in INR PAT over FY23-25E.

* We lower our FY24 EPS estimates by 4% to factor in the guidance cut, but we largely maintain our FY25 estimates. We value the stock at INR1,600 at 22.5x FY25E EPS. Reiterate our BUY rating on the stock.

Large cut in FY24 guidance a surprise

* In CC terms, revenue grew 4.2% YoY, INR EBIT grew 14% YoY, and INR PAT grew 11% YoY.

* Revenue stood at USD4.62b, up 1% QoQ in CC terms and in line with our estimate of +0.9% QoQ. Reported USD growth was 1.4% QoQ.

* A sharp unexpected cut in FY24 USD CC revenue growth guidance to 1.0- 3.5% YoY CC from 4.0-7.0% YoY CC earlier.

* Net employee count was down by 6.9k QoQ and utilization (ex-trainees) was up 110bp QoQ. Attrition (LTM) moderated by 360bp QoQ to 17.3% in 1QFY24.

* EBIT margin of 20.8% was down 20bp QoQ and 30bp below our estimate.

* INFO reported FCF of USD699m, translating to a good FCF/PAT conversion ratio of 96.6% in 1QFY24.

* Net profit of INR 59.5b was down 3.0% QoQ and 5.8% below our estimate, due to higher income tax.

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