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Muted growth, outlook unchanged

Infosys Limited provides IT consulting and software services, including ebusiness, program management and supply chain solutions. The Group’s services include application development, product co-development, and system implementation and system engineering. Infosys targets businesses specialising in the insurance, banking, telecom and manufacturing sectors.

• Infosys Limited posted Q4FY24 revenue of Rs. 37,923cr (+1.3% YoY), supported by growth in revenue from the Manufacturing as well as Energy, Utility, Resources, and Services segment and PAT of Rs. 7,970cr (+30.1% YoY) on account of double-digit growth across all verticals • EBITDA margin shrank 80bps YoY to 23.2% as a result of high operating costs during the quarter.

• Total headcount was 317,000, while yearly attrition rate declined further by 0.3% to 12.6%.

• Continued growth in revenue along with new high-value deal wins should aid growth. However, lower discretionary spending and pressure on margins remain a concern in the near term. Therefore, we reduce our rating on the stock to HOLD with a lowered target price of Rs. 1,573 based on 22x FY26E adj. EPS.

Decent revenue growth owing to lower financial services revenue

Q4FY24 revenue grew by a lower-than-expected 1.3% YoY to Rs. 37,923cr, particularly owing to lower revenue from financial services (-7.5% YoY) on account of renegotiation and re-scoping of contracts with one of the company’s financial services clients. Other verticals exhibited improvement as Energy, Utility, Resources, and Services grew 5.0%, Communications 16.4%, Hi-Tech 7.3%, Life sciences 3.0% and Manufacturing rose 10.0% YoY.

Margin remains under pressure

EBITDA decreased to Rs. 8,784cr in Q4FY24 (-2.4% YoY), and the EBITDA margin contracted by 80bps YoY to 23.2% owing to an increase in supply side pressures and high personnel costs. PAT, however, surged 30.1% YoY to Rs. 7,970cr, supported by 306.1% YoY growth in other income, inclusive of interest on income tax refund. The management expects the revenues to grow 1% to 3% in FY25 on constant currency basis on account of large deal wins and operating margin will be 20% to 22% for FY24 with the implementation of cost efficiency precautions.

Key concall highlights

• Infosys added 30 new deals during the quarter, which included 8 mega deals in communication, 6 each in BFSI and Retail, 4 each in Manufacturing and Lifesciences and 2 in Energy and Utilities. In absolute terms large deal wins amounted to $4.5 billion, enhancing the net new percentage business 52% for the year and 44% for Q4FY24.

• The company improved its net working capital cycle from 70 days to 71 days during the quarter with strong free cash flows at $2.9 bn in FY24 (+14% YoY)

Valuation

We expect the company to perform better in the upcoming quarter on the back of healthy new deals along with cost efficiency strategies, database initiatives adopted by the company and investments in AI technologies. However, the company is facing headwinds from discretionary spending, especially in BFSI which may hinder near term growth. Therefore, we reduce our rating on the stock to HOLD with a lowered target price of Rs. 1,573 based on 22x FY26E adj. EPS.

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SEBI Registration Number: INH200000345