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Guidance Reset Reflects Macro Weakness; AI Opportunity Remains Intact:

Q1FY27 was broadly in line operationally; however, the cut in FY27 upper band revenue guidance reflects a weaker demand environment than previously anticipated, with softer volumes, pricing pressure, a one-off client termination and continued weakness in Europe Manufacturing anticipated to weigh on growth through the year. While AI continues to emerge as a meaningful growth driver now contributing 8.2% of revenue and supported by a strong enterprise adoption, we believe the near-term benefits are unlikely to fully offset pressure on traditional services, where productivity-led pricing and elongated decision cycles continue to constrain growth. We lower our FY27/FY28 earnings estimate by 2-4% to reflect a slower recovery and assign ADD rating with a revised TP of INR1,140 valuing the company at 15x FY28 EPS.

In-line Quarter, Upper-end of the Guidance Cut from 3.5% to 3%

* INFY reported Q1FY27 revenues at USD 5,082 Mn, up 0.8% QoQ and 2.8% YoY (vs CIE estimate of USD 5,089 Mn). INR revenue for Q1FY27 stood at INR 4,82,110 Mn, up 3.9% QoQ and 14.0% YoY (vs CIE estimate of INR 4,78,403 Mn).

* Operating (EBIT) stood at INR 1,06,130 Mn, up 4.3% QoQ and 15.4% YoY (vs CIE estimate of INR 1,00,055 Mn). EBIT margin came in at 21.1% for Q1FY27, up 10 bps sequentially and 30 bps YoY (vs CIE estimate of 20.9%).

* PAT for the quarter came in at INR 77,690 Mn, down 8.6% QoQ and up 12.2% YoY (vs CIE estimate of INR 77,649 Mn).

Demand Remains Selective across Verticals; AI-led Pipeline Remains Healthy:

Revenue growth was impacted by a one-off client termination (~50 bps), weaker volumes and pricing pressure, prompting management to lower FY27 CC revenue guidance to 1.5–3.0% (including ~170 bps inorganic contribution). Demand remained selective across verticals, BFSI witnessed healthy traction across banking, payments and wealth management, while Manufacturing continued to be constrained by European Auto weakness and lower spending from a large client. EURS was affected by one-off client exit, though underlying demand stayed healthy, whereas Communications remained soft amid weak discretionary spending. AI continued to be the primary growth driver, contributing 8.2% of revenue, supported by strong momentum across data modernisation, agentic AI, coding and cloud transformation. Large-deal bookings remained robust at USD 3.6 Bn with 61% net-new, underpinning medium-term visibility. We forecast near-term growth to remain muted, with recovery contingent on large-deal ramp-ups and broader AI monetisation

Margin Resilience Sustained; FY27 Guidance Reaffirmed:

INFY reported an EBIT margin of 21.1% in Q1FY27, up 20 bps QoQ, supported by rupee depreciation (+70 bps), Project Maximus (+20 bps), amortisation of intangible cost (+20 bps) and a one-time cost benefit (+30 bps). These gains were partly offset by higher investments in AI, sales and marketing (-50 bps), a one-off revenue impact from a client program termination (-40 bps) and higher operating expenses (-20 bps). The company maintained its FY27 operating margin guidance of 20%–22%. However, we expect margin to remain around the lower end of the guided range with the planned wage hike later in the year remaining a key headwind.

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