Sharp cut. Infosys Q1 results: Brokerages downgrade ratings, scrip slides 8% on weak guidance

Infosys stocks slid by 8 per cent in early trade on exchanges after it nearly halved its guidance in its Q1 earnings call on Thrusday. 

The company made a sharp cut on its revenue guidance for the year from 4-7 per cent to 1-3.5 per cent, as it expects longer deal cycles and cuts in spending for transformation deals. Its American Depository Receipts (ADRs) too slumped 11 per cent on the New York Stock Exchange. 

Owing to the deep guidance cut, multiple brokerages have downgraded the stock. Nomura downgraded ‘Infosys’ to Reduce and cut the target to ₹1,210 from ₹1,260, it cut the EPS estimate by 3-4 per cent. Similarly, Macquarie downgraded Infosys stock to underperform and set a target of ₹1,130. JP Morgan too gave an underweight rating with a target of ₹1,150. 

Jefferies and HSBC have given Infosys a Buy rating and has given a target of ₹1,550 and ₹1,540 respectively. BoFA Sec has given a neutral rating with a target of ₹1,390.

Nomura noted that weakness in growth magnifies with guidance cut and predicts Infosys to underperform industry growth in FY24. Analyst note that Infosys will lag its peers in FY24. 

Sanjeev Hota, Head of Research, Sharekhan by BNP Paribas, said, “We view the Infosys Q1 earnings performance as a negative read-through for the stock, driven by steep revenues in guidance revision, and also on relative basis Infosys like to lag industry-level growth in FY24 to peers like TCS and HCL tech.”

HDFC Institutional Securities notes that the low probability event has recurred in successive quarters with a guidance cut, three times in Q1 in the last 14 years following a sequential revenue drop, eight times in the last sixty quarters in the previous quarter for Infosys. 

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