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Infosys delivered a soft operating performance in Q4, with revenue missing estimates, albeit margins were in line. Revenue declined 1.3% CC QoQ, owing to seasonality and slower decision making in the month of March. EBITM expanded 20bps QoQ to 21.0%, in line with our expectations. Large-deal TCV in Q4 was robust at USD3.6bn, of which ~40% was net new. The management expects H1 to be stronger than H2, factoring in normal seasonality, with BFSI and EURS likely to see an acceleration in revenue growth in FY27 vs FY26, on the back of healthy deal wins. Enterprise budgets are measured and selective due to macro and geopolitical uncertainties, higher interest rates, rapid tech shifts, and increased competitive intensity. The company has guided for 1.5- 3.5% CC revenue growth in FY27 (implying a CQGR of 0.7-1.5%), which is below our estimates. The guidance includes ~25bps contribution from Stratus, while excluding Versent and Optimum Healthcare acquisitions, pending closure. It also factors in a 0.75–1% drag from reduced spending by a large European manufacturing client, along with ~50bps impact from offshore shift. The management aspires to sustain EBITM in the 20-22% range, despite headwinds from wage hikes, productivity pass-throughs, ~70bps impact from acquisitions, and AI investments, offset by Project Maximus initiatives. We trim FY27-28E EPS by 0.5-1%, factoring in Q4 results and guidance. We retain BUY with TP of Rs1,450 at 18x Mar-28E EPS.

Results summary

Revenue declined 1.2% QoQ (1.3% CC) to USD5.0bn, lower than our estimate of -0.8% CC growth. EBITM expanded by 20bps QoQ to 21%, in line with our expectations, on the back of headwinds from past acquisition amortization (-50bps) and compensation-related costs offset by lower variable pay (-20bps), partially offset by currency (+40bps) and Project Maximus (+30bps). Headcount was down 2.5% QoQ to 328,594. The company has declared a dividend of Rs25/sh (Rs48/sh for FY26). What we liked: strong large-deal intake, cash conversion (85% OCF/EBITDA in FY26). What we did not like: Revenue miss.

Pockets of weakness and pockets of resilience

Sequential revenue decline was led by BFSI (-1.9% QoQ), Manufacturing (-5.9%), and Retail (-1.2%), partially offset by growth in Communications (1.3%), Hi-tech (2.9%), and others (11.2%). Among geographies, RoW grew 4.6% QoQ, while North America, Europe, and India declined sequentially. The company signed 19 large deals in Q4, with total TCV of USD3.2bn, of which ~40% was net new.

Broad commentary on AI-led shifts

AI-related engagements are typically priced at a premium, reflecting the higher cost of specialized talent, though this is partly offset by the need to share productivity gains with clients. The company is also witnessing strong momentum in AI services. While foundation models are driving productivity-led compression in traditional IT and BPM work, this impact is being largely offset by growth in new service offerings and an expansion in deal scope.

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