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24 guidance cut surprising but not material

FY25 should see pickup on ramp-up of large deal; Maintain BUY

* INFO reported 2QFY24 revenue at USD4.72b, up 2.3% QoQ in CC terms and ahead of our estimate of 0.8% QoQ CC growth, primarily due to a one-time pass-through revenue gain of 160bp. Large deal TCV at USD7.7b (48% new) was the highest ever as it won four mega deals during the quarter. However, despite the strong revenue beat and deal inflow, INFO surprisingly lowered the upper end of its FY24 revenue growth guidance to +1.0-2.5% YoY CC from +1.0-3.5% YoY CC earlier, attributing it to continued weakness in discretionary spends and a delay in mega deal scale-up to FY25.

* EBIT margin was up 40bp to 21.2% (50bp beat), led by lower net employee count, high utilization, good productivity and one-time items. Despite the revenue guidance cut, INFO has maintained its FY24 EBIT margin guidance at 20-22%.

* Despite the good 2Q, INFO surprised on the downside for the third straight quarter, unprecedented in its recent history. While we see this as negative and expect near-term pressure on the share price, we had already anticipated muted FY24 revenue growth (our est. 2.6% YoY CC before results). This was visible last quarter as well, when there was a bigger divergence between guidance and expectation. Hence, we see limited damage to INFO’s growth story from the back-to-back cuts.

* More importantly, while macro uncertainty will lead to INFO delivering tepid growth in FY24 (with a likely decline in 3QFY24 due to absence of passthrough benefit), FY25 should gain from the inflow of multiple mega deals this year. With expected macro recovery over the next few quarters, we expect the company to deliver 9.0% YoY CC USD revenue growth in FY25. On the other hand, we remain watchful of a potential increase in pass-through revenue contribution (7.3% of 2QFY24 revenue) as the share of large deals continues to rise on account of strong inflow.

* The 40bp margin improvement during the quarter was encouraging and indicated INFO’s ability to manage workforce despite the lack of an operating leverage opportunity. We now expect FY24 EBIT margins at 21.3%, up 30bp YoY. With an improvement in FY25 EBIT margin to 21.7%, INFO should deliver a 9.0% CAGR in INR PAT over FY23-25E.

* We adjust our FY24/FY25 EPS estimates by +1.4%/-1.4% to factor in 2Q performance. We value the stock at INR1,660 at 24x FY25E EPS. Reiterate our BUY rating on the stock.

Strong all-round beat; FY24 topline guidance cut implies tough 3Q

* In CC terms, revenue grew 2.5% YoY, INR EBIT grew 5.1% YoY, and INR PAT grew 3.2% YoY. ? Revenue stood at USD4.72b, up 2.3% QoQ in CC terms and above our estimate of 0.8% QoQ. Reported USD growth stood at 2.2% QoQ. Large deal TCV stood at USD7.7b (vs. USD2.3b in Q1), with a book-to-bill ratio of 1.6x.

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