Infosys tumbles 9% as FY24 revenue guidance lowered sharply; should you buy, sell, or hold?

Infosys Q1 results review: In a rude shock, India's second-largest IT services firm, while announcing its Q1FY24 results, sharply lowered its FY24 revenue guidance to 1.0 per cent - 3.5 per cent in constant currency (CC) terms, compared to 4 per cent -7 per cent guided in the previous quarter. The substantial cut in the guidance is mainly attributed to lower-than-expected volume and discretionary spending, delays in decision-making, and push-outs in anticipated mega deals.

In the opening deals on Friday, the stock tumbled 10 per cent. It eventually ended at Rs 1330.40, down 8.18 per cent on the BSE.

Analysts tracking the stock have a mixed stance on it but maintain that the steep cut in the FY24 revenue outlook was surprising and is a concern. For instance, Motilal Oswal Securities, in its earnings review note, said," While the guidance cut is concerning and should be negative for the share price in the short term (partially due to the 11% gain in the last month), we view the miss as more of a perception issue than an operational one as the earlier guidance was too optimistic in the current environment."

The brokerage added, "We lower our below-guidance FY24 estimates (earlier at 3.8 per cent YoY CC) by 120 basis points (bps) despite the 325 bps cut in guidance at the mid-point, to take into account the weaker demand commentary and project delays. We take comfort in the current 1Q-4QE revenue growth run rate estimate for Infosys, which is similar to its peers, despite lower FY24E revenue growth of 2.6 per cent YoY CC."

The brokerage has maintained a "BUY" call on the stock with a target price of Rs 1,600 (10 per cent up from yesterday's close).

Infosys Q1 Results: Net profit slips 3% QoQ to Rs 5,945 crore; FY24 revenue guidance slashed to 1.0%-3.5%

On the contrary, IDBI Capital has downgraded the stock to HOLD from BUY. In its review, the brokerage wrote, "Infosys continues to witness headwinds across its client bucket mainly led by a slowdown in discretionary spend. Further, near-term weakness in Retail, Financial services, hi-tech, and Communication (60% of the portfolio) will further keep revenues under pressure."

In addition, despite winning robust large deals (up 10 per cent QoQ US$2.3 bn) with 56 per cent net new, delays in conversion, project ramp-downs, and ramp-ups are expected to impact revenue growth. "We believe that with the improvement in macros, the company could witness improved growth in the longer run. Hence, we expect FY25E revenues to increase by 9.5% YoY."

It has set a target price of Rs 1,440.

Nirmal Bang Securities remains bearish on the stock as well as the sector. "We have been negative on the stock and the sector for the last 15 months. We continue to be cautious even now, as we believe the worst on the macro front is ahead of us and not behind us," it said in the Q1 results review report.

The brokerage said it suspects its as well as consensus FY25 earnings may not be as robust as expected as the US recession gets pushed back into 2024. It has reiterated ‘SELL’ on Infosys with a slightly higher target price (TP) of Rs 1,206, rolling forward valuation to June 2025E EPS while keeping multiple at 17.4x, a 10 per cent discount to that of TCS.