Infosys crashes over 8% as analysts downgrade on weak guidance

Shares of Infosys tanked over eight per cent on Friday as most analysts bearish on the stock after the IT major reported a lower-than-expected 11 per cent rise in net profit for the June quarter and slashed its FY24 growth outlook. The stock plunged 8.18 per cent to settle at ₹1,330.40 on the BSE. During the day, it tumbled 9.47 per cent to ₹1,311.60.

Analysts now fear that impact of the revised guidance could last for a few more quarters.

A host of analysts from global investment advisory firms such as Nomura, Macquarie, JP Morgan, has downgraded the stock post Q1 results.

Elara Securities, which downgraded the stock to Sell, said Ifosys’ CC revenue grew 1 per cent QoQ, as estimated and slightly above the street’s median estimate of 0.8 per cent. “However, amid in-line performance, Infosys downgraded its FY24 CC revenue growth guidance to 1-3.5 per cent (from 4-7 per cent earlier). This is a steep cut, likely paring the ask rate for the next three quarters even below pre-Covid levels,” it added..

• Also Read: Global headwinds. Infosys slashes FY24 guidance as clients cut spends, defer decisions

Sumit Pokharna, Research Analyst & Vice-President at Kotak Securities Ltd, said the guidance cut is either on account of the sharp deterioration in discretionary spending or compensating for a tad aggressive guidance earlier or both. The management attributed it to cut in discretionary spending and delays in large deal closures and ramp-ups. “We believe that the weaker outlook is not Infosys-specific and captures a broader slowdown, especially in key verticals, i.e. banking and telecom.”

The company’s market capitalisation fell by ₹49,159.03 crore to ₹5,52,141.59 crore.

Infosys on Thursday reported a lower-than-expected 11 per cent rise in net profit for the June quarter and delivered a shocker as it slashed its FY24 growth outlook to 1-3.5 per cent on delayed decision-making by clients amid global macro uncertainties.

The net profit came in at ₹5,945 crore for the quarter ended June 2023 against ₹5,362 crore in the year-ago period. The company posted revenue growth of 10 per cent to ₹37,933 crore during the just-ended quarter.

IDBI Capital said it believes top end of the guidance assumes conversion of large deal wins into revenues. “However, we do not expect the same to pan out and have assumed 2.2 per cent YoY growth in FY24 (from earlier expectation of 6 per cent YoY growth). This has led to lowering of our EPS estimates downwards by 6.7 per cent & 5.7 per cent for FY24 and FY25.” it added.

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

Buy recommendation

However, some brokerages recommend buy, too.

According to Motilal Oswal Financial, despite near-term weakness, “we expect Infosys to be a key beneficiary of the acceleration in IT spends in the medium term. Based on our revised estimates, the stock is currently trading at 20.5x FY25E EPS. We value the stock at 22.5x FY25E EPS, implying a TP of ₹1,600.”

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