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Revenue increased & above expectations: Infosys reported increased in Q1FY25 constant currency revenue growth by 3.6%/2.5% QoQ/YoY respectively. In rupee terms, revenue reached ?39,315 crore, marking a growth of 3.7% QoQ and 3.6% YoY. Dollar revenue stood at USD 4,714 million, up by 3.3% QoQ and 2% YoY. The growth was primarily driven by the manufacturing, energy, communications, high-tech, and life sciences sectors. However, the financial services and retail sectors, which contribute 41-44% of the business, experienced a decline. Geographically, India and Europe showed strong growth, while North America remained flat.

Margins witnessed expansion and were in-line with management expectations: The Company’s EBIT stood at Rs 8,288cr which grew by 8.8% QoQ and 5% YoY while margins were in-line with management expectation at 21.1%, which grew by 99bps QoQ and 28bps YoY. Going ahead, management focuses on growing margins in the similar range of 20-22% for FY25, driven by focus on Gen Al & Maximus models and increase in utilization levels. Its PAT stood at Rs 6,374 cr, an increase of 7.2% YoY but declined 20.1% QoQ with PAT margin at 16.2% an improvement of 54bps YoY but declined 482bps YoY due to tax refund in prevoius quarter. Management is driving margin optimization program with aspiration to achieve higher margins.

Order wins were strong: Infosys secured large deals worth USD 4.1 billion for the quarter, a 78.3% increase compared to the same quarter last year. Of these deals, 57.6% were net new. The number of large deal wins reached a record high of 34.

Attrition remains low: LTM attrition increased slightly to 12.7% in Q1 from 12.6% in Q1FY25. Management plans to on-board 15,000 to 20,000 fresh graduates through both on-campus and off-campus placements during FY25.

Upgraded revenue guidance for FY25: Management has increased its revenue growth guidance for FY25 to 3%-4% in constant currency, up from the previous 1%-3%. This growth is expected to be driven by a focus on newer technologies and securing more large deals. However, they also mentioned that clients continued to be cautious for discretionary spending and signing new deals. Further, on the operating margin front they maintain similar guidance of 20%-22%.

Outlook & Valuation: Infosys reported a strong quarter overall with broad-based sequential growth of 3.6%. Company has increased its FY 2025 revenue growth guidance to 3-4% from 1-3%, earlier. We believe there are near term challenges in the demand environment as discretionary spending by clients remains weak. However, there are signs of improvement in the US BFSI sector. The growth is expected to be driven by demand for its Gen AI & Cloud as well as emerging technologies. Additionally, their focus remains on optimization and better utilization which will aid to drive margins. On a financial front, we expect revenue/EBIT to grow by 4.7%/7.7% CAGR over FY24-26E as we have incorporated management guidance for FY25. We have revised our rating to Accumulate on the stock by revising the target price to Rs 1,931 by assigning a P/E multiple of 26x on FY26E EPS.

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