Infosys dips 3%, hits over four-month low on modest FY25 guidance

The IT services firm expects BFSI to recover, which could be a key catalyst for revenue growth and margin surprise

Shares of Infosys dipped 3 per cent to Rs 1,379.70, hitting a five-month low on the BSE on Friday. This comes after the IT services major projected a revenue growth guidance of 1-3 per cent in constant currency (CC) for the financial year 2024-25 (FY25).

However, the stock closed 0.63 per cent down at Rs 1,411.60, its lowest level since November 13, 2023. In comparison, the S&P BSE Sensex ended 0.83 per cent higher at 73,088. Infosys has corrected 18.5 per cent from its 52-week high level of Rs 1,731 touched on February 6, 2024.

Despite anticipating muted revenue growth in FY25, the management is optimistic about driving margins upward and has maintained its guidance to the earlier band of 20-22 per cent.

Meanwhile, Infosys’ headcount for FY24 was down by 25,994 employees, making it the first-ever decline in the number of workers for the Bengaluru-based company since 2001.

Infosys’s lower-than-expected guidance for FY25 and declining headcount reflect weakness, according to analysts.

Amid persistent weakness in discretionary spending due to caution on macro recovery, Infosys provided an underwhelming USD CC revenue growth guidance of 1 per cent to 3 per cent year-on-year (Y-o-Y) for FY25, significantly below our estimates, Motilal Oswal Financial Services (MOFSL) said.

Although deal wins should support the medium-term growth outlook. It has maintained its margin guidance but continues to see upside potential in the medium term, which we see as encouraging, MOFSL said in the result update.

Despite the near-term weakness, the brokerage firm expects Infosys to be a key beneficiary of the acceleration in IT spending in the medium term. MOFSL expects the company to deliver FY25 Ebit margin of 21.1 per cent, up 40bp Y-o-Y, near the mid-point of its 20-22 per cent Ebit margin guidance. The company should improve its Ebit margins over the next two years to 22.2 per cent in FY26E, leading to a 12 per cent PAT CAGR over FY24-26E, it added.

In spite of recording the highest-ever deal total contract value (TCV) in FY24, the company has given out a muted revenue guidance to the tune of 1 to 3 per cent Y-o-Y CC. Analysts at Prabhudas Lilladher expect the conversion challenges to persist in FY25 on account of a slowdown in discretionary spending and delay in decision-making, which might lead to further pausing or deferring programmess that are non-critical to business enterprises.

“We believe the company’s meaningful dependency on discretionary spends is leading to execution challenges and affecting its near-term growth. The project re-scoping and negotiations have again created a knee-jerk reaction to its executions and deliverables. We believe the current macro environment is not favoring its service mix, leading to near-term leakages, otherwise, the long–term story remains intact,” the brokerage firm said in the result update.

Infosys expects banking, financial services and insurance (BFSI) to recover, which could be a key catalyst for revenue growth and margin surprise, according to an analyst at BNP Paribas Securities India. Infosys acquired an Automotive ER&D company, in-tech, which the brokerage firm sees as a high-growth and margin business. Infosys is trading at a 20 per cent discount to TCS on one-year forward P/E, at the upper end of the historical range of 8-20 per cent discount and looks attractive to us, the analyst said.