Infosys share price targets upped; valuation gap with TCS set to narrow

Infosys Q1 results beat Street estimates on many fronts. With strong growth, optimistic commentary and upgraded guidance, the IT major's valuation gap with Tata Consultancy Services Ltd (TCS) - which at present is at 15 per cent -- should narrow going ahead, analysts said as they suggested 'Buy' on the stock, citing strong recovery and attractive dividend yield of over 3 per cent.

In the past tech cycle of 2009–16, Infosys had lost market share to peers such as TCS and HCL Technologies due to lack of its strong presence in infrastructure management services (IMS) and emerging geographies. Analysts argue digitalisation is a more potent catalyst this time for Infosys than IMS that fired up m-caps of competition by 9.8–14.5 times over 2009–16.

As far as the June quarter is concerned, PhillipCapital said Infosys results had many positives - beat on topline and margins, broad-based growth, margins recovery, record large deals, strong cash generation and upgraded FY25 guidance.

"The CC revenue grew 3.6 per cent QoQ, highest in last seven quarters, and better than street estimates of 2.5 per cent. Margins at 21.1 per cent was also ahead of estimates (20.4 per cent)," it said while suggesting a price target of Rs 2,140 on Infosys.

The brokerage expects Infosys' valuation gap with TCS to narrow going ahead, and cited levers for Infosys including pricing, nearshoring, automation, subcontracting, and optimising third-party costs.

Infosys upgraded its FY25 revenue growth guidance to 3-4 per cent YoY in constant currency (CC) terms against 1-3 per cent earlier. MOFSL said the growth outperformance during the quarter was driven by 45 per cent QoQ growth in India business, which was a one-off event.

"The guidance upgrade was largely driven by the acquisition of In-tech (0.8 per cent revenue contribution for FY25E) and the push from the one-off revenue spike in its India business. However, commentary on growth recovery in North America and financial services was encouraging. Pressure on discretionary spending persists, but we believe the cycle is turning and clients are finally considering re-investing savings," MOFSL said.

This brokerage has a share price target of Rs 2,000 on Infosys.

Nuvama said the management sounded upbeat, anticipating a recovery in US-BFS and a stronger H1 than H2. This brokerage upped its FY25E/26E EPS estimates by about 2 per cent each. "We are introducing FY27 estimates and rolling forward the valuation to 25 times Sep-26E PE, yielding an increased target price of Rs 2,050 (earlier Rs 1,720); reiterate ‘BUY’," it said.

Nirmal Bang has maintained its ‘Accumulate’ rating on Infosys but increased its share price target to Rs 1,985, valuing the stock on June 2026E EPS with a multiple of 24.3 times. "We have maintained the 10 per cent discount to the target PE multiple accorded to TCS," it said.