Infosys shares tank over 9% post a disappointing Q4, analysts caution demand moderation ahead

Infosys shares tank over 9% post a disappointing Q4, analysts caution demand moderation ahead
Salil Parekh, CEO and MD, InfosysBCCL
  • IT services major Infosys’ shares tanked over 9% on Monday after the company’s disappointing performance in the March quarter.
  • Infosys’ CEO and MD Salil Parekh painted a sombre outlook for FY24, projecting a lower-than-expected earnings guidance of 4-7% growth.
  • This spooked the street and analysts alike, with several brokerages trimming their target prices for Infosys while underlining a weak outlook for the company.
IT services major Infosys’ shares tanked over 9% on Monday after the company’s disappointing March quarter performance and sharply lower growth outlook for FY24 had investors and analysts worried. Infosys was the top loser in the Nifty50 and the Nifty IT indices, and was also the most active stock today.

After hitting the lower circuit in pre-opening trades on Monday, Infosys’ shares recovered slightly to close the day lower by 9% at ₹1,259.

The IT flock as a whole closed lower by 4.7%, with all the stocks in the index in the red, reflecting the caution amongst investors as far as the future outlook of the IT sector is concerned.

To recall, Infosys missed its own FY23 guidance of 16-16.5%, registering a constant currency revenue growth of 15.4% for the fiscal year.

What has investors spooked: Uncertain environment, unplanned project ramp downs


However, what has investors and analysts spooked is the sharply lower revenue growth outlook for FY24 – Infosys has guided for a revenue growth of 4-7% in FY24, which is lower than analyst expectations of 6-8% growth.

The Bengaluru-based IT services firm’s commentary on demand outlook also has investors on edge.

“During the quarter, we saw unplanned project ramp downs in some of our clients, and delays in decision-making, which resulted in lower volumes. In addition, we had some one-time revenue impact,” said Salil Parekh, Infosys’ chief executive officer and managing director.

Analysts at Nomura stressed that Infosys’ commentary indicates a significant demand slowdown and rising cost prices as reflected in the trimmed margin guidance for FY24.

“Infosys’ guidance of 4-7% year-on-year (YoY) revenue growth (constant currency) for FY24 (vs 13-15% for FY23 at the start of the previous year) and our expectation of 6-8% YoY guidance represent significant moderation in demand,” Nomura said, trimming its projected valuation of the company from 21x to 18x price-to-earnings.

Analysts at HDFC Securities underlined that the recent senior-level exits could add to the growth risks for the company.

Explaining why the company missed its own revenue guidance, CEO Parekh said that it was due to “ramp downs which were unplanned”.

“This was across sectors. We saw some in telecom, some in high-tech, some in retail. Within financial services, [it was] mortgages, asset management and investment banking,” Parekh added.

Analysts at Nuvama Institutional Equities cut their earnings per share estimate for Infosys by 4.4-6.3% for FY24 and FY25 due to the “disappointing Q4” performance, but maintained that the longer-term prospects of the company remain intact.

Brokerages trim target prices

Brokerages have trimmed their target prices for Infosys over the next 12 months, on account of the demand slowdown and headwinds to margin expansion in the form of wage and other cost increases.

Despite the cuts in target prices, most brokerages maintained their ‘buy’ recommendations on the stock.

BrokerageTarget priceRecommendation
Kotak Institutional Equities₹1,470Buy
HDFC Securities₹1,470Add
Emkay Global₹1,620Buy

Source: Brokerages

$INFY.NSE Hope some of you'll benefitted 😊 Nothing is surprising, the setup was there, news is just catalyst. Still enough time before we bottom out.

— (@prashant280294) April 17, 2023


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