Infosys shares: Can Q1 results give worst Nifty stock performer some relief?

Down 10 per cent, Infosys is Nifty's worst stock performer in the last one year. The stock has been trading at a one-year forward PE multiple that is at a discount to its five-year average, thanks to Infosys’ muted growth guidance for FY24, a weakness in discretionary spends globally and uncertainty over deal wins as hinted at by global peers including Cognizant and Accenture. Analysts are largely keeping hopes low, as the IT major announces it quarterly results on July 20.

All eyes would be on commentary on demand and deal pipeline. An update on tech spending outlook, margin lever, and revision in FY24 guidance would also be keenly watched. For now, a few brokerages expects Infosys to revise downward its upper limit of the FY24 guidance to 4-6 per cent while keeping its Ebit margin guidance intact.

To recall, Infosys had guided for 4-7 per cent growth in constant currency (CC) revenue and 20-22 per cent Ebit margin for the financial year. This was against a consensus forecast of 5-8 per cent revenue growth and 21-23 per cent Ebit margin.

HSBC said Infosys’ Q4 miss was led by higher exposure to discretionary spend (especially in telecom), productivity pass-through in the BFSI (banking, financial services and insurance) vertical and some delays in other businesses.

"Q1 may still see a spill-over from these sub-trends. Overall, FY24 guidance from Infosys is unlikely to change (from 4-7 per cent), though we think the Street may converge around 5 per cent post Q1," it said,

Phillip Capital expects CC revenue growth of 0.8 per cent sequentially on a weaker base of March quarter. Demand uncertainty in BFSI, Telecom, Hitech and Retail will lead to weak start for FY24, it warned.

"Margins are expected to remain flat as efforts from pyramid optimisation, utilisation, and sub con will be offset by likely increase in travel & facility costs. We have not assumed wage hikes for Infosys in Q1. We expect Infosys to retain its guidance,' it said.

The brokerage, however, sees profit jumping 18.6 per cent YoY to Rs 6,357.70 crore from Rs 5,360 crore YoY and revenue rising 10.5 per cent YoY to Rs 38,095 crore from Rs 34,470 crore. Dollar revenue is seen rising 1 per cent sequentially and 3.5 per cent YoY. Ebit margin is seen at 21 per cent, flat QoQ  but up 100 bps YoY.

Infosys may outshine with an estimated 0.8 per cent sequential CC growth post a sharp miss in Q4FY23 and a one-off impact, said Elara Securities in a note. It sees HCL Tech (0.7 per cent), Tata Consultancy Services (0.6 per cent) to report lesser revenue growth. Tech Mahindra and Wipro are seen reporting sequential drop in revenues due to high exposure to communications and mortgage, respectively.

Antique Stock Broking sees a lower 0.5 per cent QoQ CC revenue growth, even as it accounted for 10 bps tailwind from cross currency. Operating margin should largely be flat at 21 per cent as an increase in visa and facilities cost should be offset by an increase in utilisation, it said.

"We believe large deal wins to remain decent given the recent deal wins and the increasing momentum of cost take deals. But we expect management to narrow its growth guidance by lowering the upper band by 100 bps to 4–6 per cent as the company’s ask rate to achieve the upper-end post a weak 1Q would be nearly 4.5 per cent CQGR. Margin guidance to remain intact at 20–22 per cent for FY24.

Kotak said it is surprised with the resilience of many IT stocks. It finds value in Infosys and said the IT stock is its top pick in the sector.

Elara Securities finds risk-reward favourable for India IT Services but prefers TCS and TechM among largecap stocks.

Within Tier I, Phillip Capital said it likes LTIMindtree, TCS and Infosys.

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