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Infosys Ltd. reported strong Q2FY25 revenues at $4,894mn, up 3.1% QoQ and 3.3% YoY in cc terms driven by growth in financial services. In USD terms, reported revenue was up 3.8% QoQ and 3.7% YoY. INR revenue for Q2FY25 stood at INR409.9bn, up 4.3% QoQ and 5.1% YoY. Q2FY25 Large TCV stood at $2.4bn (41% being net new). PAT for the quarter came in at INR65.1bn, up 2.2% QoQ and 4.7% YoY, with EPS at INR15.7

*  Revenue guidance improved to 3.75-4.50% cc for FY25E: Management sees increase in discretionary spending in Financial Services vertical in North America. Growth is visible in cards, payments, mortgages and capital markets space within the vertical. Company also saw strong growth in large deals and along-with the completion of in-tech acquisition, the visibility has improved and company has revised its revenue guidance to 3.75-4.50% cc. Revenue contribution from in-tech in Q2 was 80bps. Softness is seen in automotive space in Europe and hence it is expected to remain weak. Retail, Hi-tech and Communication verticals are expected to grow in similar lines as FY24. Geographically, the Emerging market business is anticipated to see good growth. The guidance is baked in after considering the macro-environment with focus on cost optimisation and vendor consolidation deals. Management is observing strong traction in GenAI programs by leveraging its Topaz and Cobalt capability. Company has huge focus on three GenAI areas viz. building Enterprise wide GenAI platform, building small language model and launching multi-agent solutions.

*  Discretionary type of deals still need to wait: The company has indicated that deals related to digital transformation are likely to face further delays, as market conditions have not significantly improved. Market sentiment and discretionary spending remain comparable to previous quarters and continue to be lower, with the exception of a recovery observed in the Financial Services segment. However, the company is experiencing strong traction with clients in GenAI, particularly among enterprises leveraging data sets on a cloud foundation

*  Comfortable margin band is 20-22%: Operating (EBIT) Margins came in at 21.1% for Q2FY25, flat sequentially and down 12bps YoY driven by continued benefits from value-based pricing and utilization despite higher employee payouts. Company has retained their comfortable operating margin band of 20-22% for FY25E. H2 margins would have certain headwinds like Q3 seasonality softness and wage hikes offset by tailwinds from Project Maximus and margin guidance is after baking in such scenarios.

Valuation: Company is witnessing strong traction in GenAI projects spanning software engineering, process optimization, customer support, advisory services, and sales and marketing. This widespread growth, coupled with margin expansion, substantial large deals, and record cash generation, bolsters confidence in near-term growth prospects. We have introduced FY27E and expect Revenue/EBIT/PAT to grow at a CAGR of 9.5%/13.5%/11.6% respectively over FY24-FY27E. We maintain BUY rating to arrive at a revised target price of INR2,142 implying a PE of 29x on SepFY27E EPS of INR81.

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