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Revenue growth in-line: Infosys results for Q1FY24 came in-line with rupee revenue at Rs 37,933cr which is a growth of 1.3% QoQ and 10% YoY while dollar revenue stood at USD 4,617, up by 1.4% QoQ and 3.9% YoY while growth in constant currency was at 1% QoQ and 4.2% YoY. Challenging environment and delay in spending by clients as well as signing the deals impacted growth. Amongst geographies, North America and Europe contributing ~87-88% of revenue saw a growth of just 1% & 0.6% QoQ while India and Other regions posted growth of 5.2% and 4.5% however their contribution to revenue is minimal between 12-13%. Amongst segments, muted growth was seen from financials and retail segments (contributes ~42-43% of revenue) while manufacturing, energy hi-Tech and life science gained in the range of ~1.3-5.8% QoQ.

Steady EBIT margins: Infosys reported EBIT margins of 20.8% in-line with management guidance. EBIT growth for Q1FY24 came in at 14.1% YoY while EBIT margins was up by 74bps YoY while sequentially growth remained flat and margins de-grew by 24bps due to higher variable pay to employees which was an impact of ~90bps while cost optimization measures and improved utilization helped in savings of 70bps.

Attrition moderated for yet another quarter: This is the fourth consecutive quarter where Attrition has been easing and it stood at 17.3%, a decline of 360bps QoQ and 1,110bps YoY which is positive. Attrition for Q1FY23 was at 28.4% (down by 39% YoY) and for Q4FY23 at 20.9% (down by 17% QoQ).

Deal momentum continued to be strong: Infosys won deals worth USD 2.3bn for Q1FY24, a growth of 10% YoY (USD 2.1bn) and 35% QoQ (USD 1.7bn). Going ahead, clients focus remains on cost efficiency, automation and AI technology wherein large and mega deals wins are expected from 2HFY24 onwards.

Management revised its guidance downwards: Though Q1FY24 results were in-line, management revised its FY24 Revenue growth guidance to 1.0%-3.5% in constant currency from 4-7% earlier. However, it maintained its operating margin guidance at 20%-22%. Management commentary was cautious for the near term and they stated that for the near term deals signings as well as start dates are delayed and volume of work is reduced for financials & telecom sector which may continue to impact revenue growth. However, from a medium to long term perspective they believe there are a lot of mega deals lined up as well as solutions & platforms in new technology as per clients' demand which would help in translating into revenue in the second half.

Outlook & Valuation: We believe in the near term the challenges on macro front, delay in spending & decision by clients would continue to impact growth for Infosys. Also, management cautious view and downwards revision in revenue growth guidance remains a concern. Incorporating the management revised guidance our estimates are cut by 4-5% for FY24E & FY25E and our revenue /EBIT in rupee term is expected to now grow by 7.2%/10.6% CAGR over next 2 years. Thus, our target price is revised downwards to Rs 1,738 from earlier Rs 1,855 but we maintain a Buy rating.

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