IGI Logo

Guidance raised

Infosys’ (INFO IN) Q3 revenue was better than our expectation, also helped by the NHS deal while margins were also better than expectations. Based on strong 9MFY26 and robust deal wins, INFO increased its revenue growth guidance for FY26 to 3-3.5% from 2-3%. The ask rate for Q4 for lower / higher end of FY26 revenue growth guidance is -1.7% to +0.2%, which should not be a tall task. INFO is seeing an increase in discretionary demand in BFSI (across sub verticals of payments, mortgages and asset management) as well as in energy (low carbon solutions), which should help accelerate growth next year. The recovery in other verticals still appears distant. INFO has maintained its margin guidance of 20-22%. We maintain Accumulate with TP raised to INR 1,770.   

TCV growth of 92% YoY, led by vendor consolidation: INFO’s revenue came in at 0.5% QoQ and 3.2% YoY in USD terms. In CC terms, it was up 0.6% QoQ and 1.7% YoY. In INR terms, revenue grew by 2.2% QoQ and 8.9% YoY, supported by INR depreciation. Volumes remained soft, with growth led by value-based selling and productivity realization. In Q3, growth was led by Europe, up 7.2% YoY CC, and RoW, up 2.5% YoY CC, while North American market declined 1% YoY CC. Revenue growth was led by Communication and Manufacturing, up 9.9% and 6.6% YoY CC, respectively in Q3, followed by BFSI and Energy. Retail CPG and Hi-Tech declined on a YoY CC basis on the back of tariff uncertainties and cost pressures. Q3 TCV was USD 4.8bn, +57% QoQ/+92% YoY, 57% net new with 26 large deals, including two mega deals. INFO continues to benefit from vendor consolidation, resulting in increasing market share.

Margin expanded 20bps QoQ: Reported EBIT margin expanded 20bps QoQ to 21.2%, supported by tailwind of 40bps from currency and 40bps gains from Project Maximus (value-based pricing, automation). About 70bps headwinds from furloughs, fewer working days, and higher variable pay were partially offset by a one-off benefit in Q3. PAT for Q3 was impacted by INR 12.89bn related to the new Labor Code-related impact. Recurring impact of the labor code changes is expected at ~15bps. FY26 operating margin guidance was maintained at 20-22% for FY26 (excludes the impact of labor code), supported by continued pricing improvements via Project Maximus.

Maintain Accumulate; TP raised to INR 1,770: INFO is seeing a recovery in BFSI and Energy, while other verticals may take some time to recover. INFO also mentioned that it is a preferred AI partner for top-15 out of top-25 banking clients. It continues to benefit from vendor consolidation deals and deal TCV continues to see an upward trajectory, which should provide growth visibility in the medium term. The company is working on 4.6K AI projects and have identified 6 AI led value pools where they can drive faster growth going forward. They re-iterated that impact of H-1B visa constraints has been minimal.

We raise our estimates by incorporating revenue from the mega deal (USD 1.6bn, 15 years with UK NHS) won in Q3 as well as small tuck-in acquisitions. So, we raise FY27/28E revenue estimates by 2-3%. We thus raise our TP to INR 1,770 from INR 1,700 (target multiple unchanged at 22x). Maintain Accumulate.

Please refer disclaimer at Report
SEBI Registration number is INH000000933