Infosys shares crack 9% on FY24 guidance; share price targets suggest more fall ahead

Shares of Infosys took a beating on Friday morning, plunging over 9 per cent as a host of brokerages cut their share price targets on the stock following a downward revision FY24 revenue guidance. The fall was much in line with a steep fall in Infosys American Depositary Receipts (ADRs) overnight. The stock fell after the IT giant revised downward its FY24 constant currency (CC) revenue guidance to 1-3.5 per cent compared with 4-7 per cent suggested earlier. This is even as its CC growth for Q1 came in line with Street estimates. Infosys cited lower-than-expected volumes and discretionary spending, delays in decision-making and push-outs in anticipated mega deals.

"The stock has run up by 19 per cent from its recent lows in April and is currently trading at 22 times one year forward PE, close to its five-year average (22 times). We believe stock can remain under pressure in the near term until clarity emerges on revenue growth revival. We downgrade to Neutral from BUY," said Philip Capital.

The stock fell 9.47 per cent to hit a low of Rs 1,311.60 on BSE. Infosys ADRs plunged 8.41 per cent to $16.22 apiece in overnight trading and were down another 0.7 per cent in the after hours. The steep fall in ADRs is reminding investors of a similar fall in Infosys ADRs in April following surprisingly weak March quarter results. That time, Infosys saw a double-digit percentage fall and was battered badly on the domestic market the next day.

Watch: Infosys share price today: IT stock cracks over 9% after Q1 results; should you buy, hold or sell? See what analysts say

A sudden sharp cut in revenue growth guidance in 1QFY24 is surprising for a company at the top of the game and leading growth charts, Kotak Institutional Equities said.

"This does warrant a closer scrutiny although there is nothing in metrics that suggests loss of competitiveness or wallet share. We cut FY2024-26E revenue forecast by 2-3 per cent and FY24 CC revenue growth forecast to 3.3 per cent from 4.9 per cent earlier. We cut EPS estimates by 2-3% baking in lower growth and marginal cut in margins, offset by change in INR/USD assumption," it said.

Nomura India said the IT firm is set to underperform industry growth in FY24. It has downgraded the stock to 'Reduce' while suggesting a target of Rs 1,210 from 1,450.

"We lower FY24-25F earnings by 3-4 per cent driven by revenue estimates. Our revised EPS estimates are 5-6 per cent lower than the Street’s. We downgrade the stock to Reduce from Neutral, with a lower target price of Rs 1,210 set at an unchanged 18 times FY25F EPS. Our target multiple is based on a three-stage growth model discussed in our sector report and is lower than the five-year average of 20 times. The stock currently trades at 21.7 times FY25F EPS," the brokerage said.

Macquarie has downgraded the stock to 'Underperform' with a target of Rs 1,130. BofA Securities finds the stock Rs 1,390 worthy.

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