IGI Logo

Modest FY25 guidance to weigh on near-term returns

Strong deal wins improve visibility for FY26 growth

* INFO reported muted revenue of USD4.56b in 4QFY24, down 2.2% QoQ in CC terms, below our estimated decline of 0.1% QoQ CC. The weak 4Q was partially driven by a 100bp one-off hit from re-scoping part of work the company does for a large BFSI client. As a result, FY24 revenue growth stood at 1.4%, missing the company’s guided growth band of 1.5%-2.0% YoY CC. The large deal TCV momentum remained intact at USD4.5b (up 2.1x YoY, net new at 44%). The management continues to see a good pipeline of large deals, although the demand environment remains unchanged.

* Amid persistent weakness in discretionary spending due to caution on macro recovery, INFO provided an underwhelming USD CC revenue growth guidance of 1%-3% YoY for FY25, significantly below our estimates.

* On the other hand, we see INFO’s highest-ever deal TCV in FY24 of USD17.6b (+80% YoY, 1.0x Book-to-bill) as positive, although the near-term drag from the slowdown in the discretionary business has partially taken away the benefits from the growing share of annuity business. We expect the company to deliver FY25 USD CC revenue growth of 2.5% YoY, near the top end of its guidance, before returning to double-digit growth in FY26E (MOFSLe at 10.6%), as macro visibility improves. This will result in FY24-26 USD revenue CAGR of 6.4% YoY, slower than our expectations from its peers TCS and HCLT.

* EBIT margin (adjusted for one-off charges in 3Q) declined 100bp QoQ to 20.1%, 40bp below our estimate. It was impacted by one-off cost of contract renegotiation (100bp), while other cost increases were compensated by efficiency gains and lower provisions. INFO again reported workforce reduction (-5.4k), which brought FY24 headcount reduction to ~26k.

* We expect the company to deliver FY25 EBIT margin of 21.1%, up 40bp YoY, near the mid-point of its 20%-22% EBIT margin guidance. INFO should improve its EBIT margins over the next two years to 22.2% in FY26E, leading to 12% PAT CAGR over FY24-26E.

* We lower our FY25/FY26 EPS estimates by 5-6%, primarily due to weak 4Q and muted FY25 revenue growth guidance. We view INFO as a beneficiary of the acceleration in IT spending over the medium term. We value the stock at 22x FY26E EPS and reiterate our BUY rating. Weak 4Q performance and FY25 guidance

* USD revenue stood at USD4.56b, down 2.2% QoQ in CC, below our estimate of a 0.1% QoQ decline.

* Discretionary slowdown remains the key factor. INFO also had a 100bp hit from re-scoping of work at a large BFSI client.

* FY25 USD CC initial revenue growth guidance was disappointing at +1.0- 3.0% YoY CC, missing our and consensus expectations.

* EBIT marg in came in at 20.1%, down 100bp QoQ (vs. adj. 3Q margin). The employee count declined by 5.4k QoQ in 4Q and 26k YoY in FY24.

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html

SEBI Registration number is INH000000412