Buy Infosys Ltd For Target Rs. 1,810 By Choice Broking Ltd
Infosys raises lower end FY26E guidance; AI-driven growth expected ahead
On the back of strong Q1FY26, Infosys has revised up its lower end of revenue guidance from 0–3% to 1–3% for FY26E. However, the company refrained from revising upper end of guidance as the demand environment still remains uncertain led by unresolved tariffs & geopolitical issues weighing on client sentiments & resulting in cautious discretionary spending & delays in decisionmaking. However, as macroeconomic headwinds gradually subside, rising client interest in AI-led transformation & cost-efficiency initiatives is expected to drive better growth in H2FY26 and meaningful acceleration in growth from FY27 onwards. We expect Revenue/ EBIT/ PAT to grow at a CAGR of 7.4%/ 11.0%/ 10.7% over FY25-28E and revise our rating to ‘BUY’. We roll forward to FY28 estimates & consider average of FY27E & FY28E EPS of INR 82.3, implying a PE multiple of 22x (maintained) to arrive at our Target Price of INR 1,810.
Q1FY26 Top-line beats expectations, EBITM resilience maintained
* Reported Revenue for Q1FY26 stood at USD 4,941Mn up 4.5% QoQ (vs CIE est. at USD 4,871Mn), which includes 40bps in-organic growth. The CC growth was 2.6% QoQ. In INR terms, revenue stood at INR 422.7Bn, up 3.3% QoQ.
* EBIT for Q1FY26 came at INR 88.0Bn, up 2.7% QoQ (vs CIE est. at INR 86.8Bn). EBIT margin was down 20bps QoQ to 20.8% (vs CIE est. at 20.8%).
* PAT for Q1FY26 came at INR 69.2Bn, down 1.6% QoQ (vs CIE est. at INR 67.5Bn).
TCV led by vendor consolidation deals with 55% being net large new:
Infosys began FY26 on a strong note, securing USD 3.8Bn in large deal TCV, with 55% classified as net new. This included over USD 1Bn in vendor consolidation deals, notably a megadeal with a global bank, highlighting Infosys’s leadership in Enterprise AI & strong delivery capabilities. Q1FY26 revenue grew 2.6% QoQ in CC, prompting a revised FY26 growth guidance of 1–3% (up from 0–3%). The adjustment reflects persistent uncertain macroeconomic outlook, shaped by geopolitical & tariff-related pressures, meaning the environment has not improved as initially hoped. BFSI showed solid momentum, especially in the US, where Infosys became the preferred AI partner for 10 of the top 20 clients. Europe outperformed, driven by strategic investments & consolidation deals. Despite challenges in North America, 20 large deals were signed. However, sectors like Manufacturing, Retail, & Hi-Tech saw cautious client behaviour, delayed decisions, & budget shifts toward AI-led productivity.
EBIT margin guidance intact at 20-22%: Infosys reported a Q1FY26 EBIT margin of 20.8%, down 20 bps sequentially, yet maintained its FY26 margin guidance at 20–22%. Margin pressures stemmed from a 100 bps impact due to compensation hikes and variable pay, 30 bps from currency movements, & 20 bps from sales investments. These were partly offset by gains of 70 bps from Project Maximus & QoQ seasonality benefit, 40 bps from lower amortization (nonrecurring charge in prior quarter), & 20 bps from reduced third-party costs. We expect FY26E margins to marginally improve to 21.5% through Project Maximus, value-based selling, & cost controls, while managing deal transition expenses. Headcount at Q1FY26-end was 323,788, largely flat QoQ. Growth was driven by 30 bps improvements in utilization to 85.2% (including trainees) & pricing gains, rather than new hiring. Attrition rose slightly to 14.4%.
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