Infosys shares may track ADR selloff as downward revision in FY24 revenue guidance disappoints

Shares of Infosys, the top performer in the Nifty pack in the last one month, may slide on Thursday morning following a steep fall in its American Depositary Receipts (ADRs) overnight, as the IT firm 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.

Infosys ADR 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.

FY24 guidance reset will impact the near-term stock view, said Motilal Oswal Securities.

"We lower our below-guidance FY24 estimates (earlier at 3.8 per cent YoY CC) by 120 bps despite the 325 bps cut in guidance at the mid-point, to take into account the weaker demand commentary and project delays," it said while suggesting a Rs 1,600 target on the stock. 

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

Infosys on Thursday maintained its Ebit margin guidance at 20-22 per cent. Its profit growth was short of Street estimates. While a few brokerages did anticipate some downward revision in revenue guidance, a 1-3.5 per cent growth target missed their forecasts by a wide margin.

Infosys reported a 10.9 per cent year-on-year (YoY) rise ni net profit at Rs 5,945 crore for the June quarter compared with Rs 5,360 crore in the same quarter last year. This was against 14-18 per cent growth in the bottom line anticipated by analysts for the quarter. Net sales for the Bengaluru-headquartered firm rose 10 per cent YoY to Rs 37,933 crore from Rs 34,470 crore in the corresponding quarter last year. Revenue growth came in line with Street expectations.

Operating margin for the quarter stood at 20.8 per cent, up 80 basis points over 20 per cent in the year-ago quarter, but down 20 basis points QoQ from 21 per cent in the March quarter. This was in line with analyst estimates.

Revenue came in at $4,617 million in dollar terms, with the IT firm clocking 1 per cent sequential (up 4.2 per cent YoY) sales growth in constant current (CC) terms. Analysts were expecting a sequential growth of 0.5-0.8 per cent.

CFO Nilanjan Roy said Q1 operating margins were resilient in an uncertain macro environment on the back of our continued focus on cost optimisation.

Also read: Stocks that market analysts recommended on July 21, 2023: Titagarh Rail Systems, Polycab India, Bank of Maharashtra, VRL Logistics

Infosys' rigorous operational discipline including improved productivity measures and higher utilisation helped margins for the quarter, he said . “Free Cash conversion was robust at 96.6 per cent of net profits. Execution of strong capital allocation policy resulted in higher payouts to investors and improved ROE to 32.8 per cent” he added.

Also read: Reliance Industries, Infosys, LIC, Tech Mahindra, HUL, Ashok Leyland, others among stocks to watch on July 21, 2023

Also read: Top news on July 21, 2023: Q1 results of Reliance Industries, Paytm, Vedanta,...