Infosys gains nearly 2% as company inks $1.64 billion deal with Liberty Global; here is what JP Morgan says

Infosys share price: Days after HCL Technologies announced a mega deal with Verizon, a leading telecom company in the US, Infosys announced on August 15 (Tuesday) that it had signed a 1.5 billion euro ($1.64 billion) agreement with Liberty Global to evolve and scale the latter's digital entertainment and connectivity platforms.

The stock of Infosys rallied as much as 1.81 per cent to Rs 1,419 on the BSE in the opening deals on Wednesday. It finally ended at Rs 1,418.50 on the BSE, up 1.78 per cent.

The 5-year agreement, which has an option to be extended to 8 years and beyond, will have Infosys taking over the operations of the UK-headquartered company's entertainment and connectivity platforms, with its AI offering Infosys Topaz, the companies said in a joint statement on Tuesday. CLICK HERE TO READ FULL REPORT

However, after the deal announcement, foreign brokerage JP Morgan has maintained an 'underweight' rating on Infosys stock with a target price of Rs 1,150. The brokerage said the deal is likely to be margin-dilutive, perhaps on the lines of past Verizon/Daimler contracts. 

It further said that the annual revenue from this deal should average $330 million, but not entirely net new, as Liberty Group is an existing large customer. It added that it doesn't expect a material contribution to FY24, though it could add 70–90 bps to FY25E growth, assuming 50–70 per cent net new.

Infosys Q1 Results 

The IT major in July reported a net profit of Rs 5,945 crore for the quarter ended June 30, 2023, translating into a 3.1 per cent decline on a sequential basis. On a year-on-year (YoY) basis, the figure grew by 10.9 per cent. Revenue for the quarter under review came in at Rs 37,933 crore, up 1.3 per cent QoQ and 10 per cent YoY. Revenue in US dollar terms increased 1.4 per cent QoQ to $4,617 million. On a YoY basis, the number increased by 3.9 per cent. Revenue in constant currency (CC) terms increased 4.2 per cent YoY and 1 per cent QoQ.

The biggest highlight of the company's results was the sharp cut in its FY24 revenue growth guidance. In the previous quarter, the company had guided for 4 per cent -7 per cent, which in Q1FY24 was revised downwards to 1.0 per cent - 3.5 per cent in constant currency terms. The guidance for the operating margin remains the same: 20 per cent and 22 per cent. READ MORE