Buy Infosys Ltd for the Target Rs.1,900 by PL Capital
From Digital to AI, positioned for next cycle of growth
Quick Pointers:
* AI services creates a TAM opportunity of USD 300-400 bn by CY2030
* AI services contribute ~5.5% to the company’s revenue mix currently
We attended Infosys’ AI Day where management outlined the implications of enterprise AI adoption for the company & clients. Management believes that the labor-intensive model would still be relevant. The employee roles would be shifting from applications development or infrastructure management to a more complex role, training AI models or building orchestrating layer, even beyond the funnel the agentic deployment, establishing governance and regulatory guardrails would require relevant skill set. The agentic workflows would compress the IT service revenue to some extent, but at the time it sees the incremental opportunity in Advanced AI (USD300-USD400b by CY30) to exceed the compression that it sees for IT services. The recent partnership with Anthropic would help it deploy tailored AI Agents across multiple industries. Again, the ownership of AI Agents, whether a third-party provider or a vendor itself, would control the enterprise billing. INFO currently derives ~5.5% of revenues from AI and serves ~90% of its top 200 clients. Every cost reduction cycle has seen an exponential increase in demand, whether it is Cloud or Digital, this time it should not be different. We value the stock at 22x FY28E EPS to arrive at a TP of ?1,900; maintain BUY.
AI creates new services TAM: Management indicated that AI represents a structural expansion of the IT services market rather than merely a productivity lever, creating a new services TAM estimated at ~USD 300–400bn by CY2030. The opportunity is driven by enterprise workflow redesign and legacy modernization, shifting deals from application maintenance to consulting-led, multi-year transformation programs. To address this, the company outlined a twopronged AI strategy: (1) AI-first services across six value pools spanning workflow redesign, decision systems, governance and physical AI, and (2) AI-augmentation of existing services to increase wallet share and embed AI across client operations. AI-led engagements currently contribute ~5.5% of revenues and are expected to scale rapidly as adoption moves from pilots to enterprise-wide deployments.
Legacy modernization & process redesign becomes unavoidable for clients: Management indicated that AI adoption is structurally accelerating legacy estate modernization and enterprise workflow redesign. With ~60% of IT budgets currently tied to maintaining legacy systems, AI-led operating models could reduce this toward ~30–40%, freeing spend for data and transformation layers. However, migration alone is insufficient as AI systems require redesigned workflows, governance and operating procedures with human-in-the-loop validation. As a result, enterprise transformation shifts towards business process reengineering, making demand larger, longer-duration and consulting-led, which materially expands the addressable opportunity for IT services providers.
Strategic positioning around platform, ecosystems & agents: Management highlighted that it has built a platform-led AI stack anchored on Topaz Fabric integrating LLM/SLM models, enterprise data, agentic orchestration, governance and accelerators into its delivery architecture, supported by 600+ proprietary AI agents across IT and domain workflows to enable enterprise-scale adoption and strengthen its positioning as a trusted AI partner. The company also indicated continued investments both organic and inorganic to further scale its AI capabilities and expand solution offerings.
Valuations and outlook: We estimate USD revenues/earnings CAGR of 6.6%/10.2% over FY26E-FY28E. The stock is currently trading at 16x FY28E, we are assigning P/E of 22x to FY28E earnings with a target price of Rs. 1,900 while maintaining our BUY rating on the stock.
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