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Updated January 12th, 2024 at 13:06 IST

Infosys projects strong recovery in FY24 despite Q3 revenue dip: Report

The company's large deal Total Contract Value (TCV) remained robust at $3.2 billion, showcasing a 3 per cent,

Abhishek Vasudev
Infosys
Infosys reported an operating profit margin decline of 70 basis points | Image:Infosys
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Infosys eyes recovery in FY24: Infosys shares rose as much as 7.89 per cent, posting its biggest single-day gain since March 20, 2020 on Friday.

The country's second largest information technology (IT) services company, showcased resilience amid challenging market conditions, reporting a revenue of $4.66 billion, down 1.0 per cent sequentially in constant currency (CC) terms.

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The performance exceeded market expectations, with the company managing to narrow its FY24 revenue growth guidance band to 1.5 per cent-2.0 per cent annually in CC terms, Motilal Oswal analysts said in a report.

Image credit: Infosys

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Despite facing headwinds in certain sectors like Financial, Communications, Retail and Hi-Tech, Infosys saw compensatory growth in manufacturing, Energy, Natural Resources, and Utilities (ENU), and Life Sciences.

Large deal wins

The company's large deal Total Contract Value (TCV) remained robust at $3.2 billion, showcasing a 3 per cent annual decrease but maintaining momentum with a net new TCV at 71 per cent, Motilal Oswal said.

The management expressed confidence in the large deal pipeline, highlighting resilience in the face of an adverse demand environment. The optimism is further supported by a steady moderation in attrition (12.9 per cent in third quarter) and improved utilisation at 82.7 per cent, factors contributing to stable margins, analysts at Motilal Oswal said.

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Image credit: Infosys
 

Infosys reported an operating profit margin decline of 70 basis points (QoQ) to 20.5 per cent, slightly surpassing Motilal Oswal estimates. The company's profitability was aided by lower-than-expected wage hike impacts, coupled with ongoing workforce reduction initiatives.

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Expectations of stable margin

Looking ahead, analysts predict Infosys to deliver a stable margin in the fourth quarter, resulting in a projected 20.8 per cent operating profit margin for FY24, aligning closely with the midpoint of its 20 per cent-22 per cent EBIT margin guidance.

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The report highlights Infosys's position as a beneficiary of the accelerating IT spending landscape, particularly in cloud and digital transformation areas. Analysts project a positive trajectory, with Infosys expected to improve its EBIT margins over the next two years, reaching 22.5 per cent in FY26.

Despite a few adjustments in revenue growth guidance, Infosys has maintained its margin guidance, instilling confidence among investors. Motilal Oswal reiterated its buy rating for Infosys, valuing the stock at 22 times FY26 estimated EPS, implying a target price of Rs 1,750. 
 

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Published January 12th, 2024 at 13:02 IST

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