Infosys crashes over 8% as analysts downgrade on weak guidance

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Shares of Infosys fell more than eight per cent on Friday as most analysts were dipping into the stock after the major IT company reported a less-than-expected 11 per cent rise in net profit for the June quarter and lowered its forecast for growth in FY24. The stock fell 8.18 per cent to settle at Rs 1,330.40 in BSE. During the day, it decreased by 9.47 percent to INR 1,311.60.

Analysts now fear that the impact of the revised guidance could last for a few more quarters.

A group of analysts from global investment advisory firms Nomura, Macquarie and JP Morgan downgraded the stock after first-quarter results.

Elara Securities, which downgraded the stock to sell, said Ifosys’ revenue in CC grew 1 percent quarter-over-quarter, as estimated and slightly above the street’s average estimate of 0.8 percent. “However, amid the head-to-head performance, Infosys lowered its FY24 CC revenue growth guidance to 1-3.5 percent (from 4 to 7 percent earlier). This is a sharp cut, and will likely shrink the asking price for the next three quarters even below pre-Covid levels.”

Sumit Pokharna, research analyst and vice president at Kotak Securities Ltd, said the guidance cut was either due to a sharp deterioration in discretionary spending, to make up for earlier strong guidance, or both. Management attributed this to reduced discretionary spending, delays in closing large deals, and increased expenses. “We believe the weaker outlook is not specific to Infosys and picking up a broader slowdown, particularly in key sectors, such as banking and telecom.”

The company’s market capitalization decreased by Rs.49,159.03 crore to Rs.552,141.59 crore.

Infosys on Thursday reported a less-than-expected 11 percent rise in net profit for the June quarter and delivered a shock as it cut its growth forecast for fiscal 24 to 1-3.5 percent due to delayed decision-making by customers amid global macro uncertainty.

Net profit came in at ₹5,945 crore for the quarter ended June 2023 as against ₹5,362 crore in the previous year period. The company recorded revenue growth of 10 per cent to Rs. 37,933 crore during the quarter just ended.

IDBI Capital said it believes the end of the guidance assumes the conversion of profits from large deals into revenue. “However, we do not expect the same to happen and have assumed growth of 2.2 percent year-on-year in FY24 (from a previous forecast of 6 percent annual growth). This has resulted in EPS estimates being cut down to 6.7 percent and 5.7 percent for FY24 and 25.” he added.

Purchase recommendation

However, some brokerages recommend buying as well.

According to Motilal Oswal Financial, despite near-term weakness, “We expect Infosys to be a major beneficiary of an acceleration in IT spending in the medium term. Based on our revised estimates, the stock is currently trading at 20.5x FY25E EPS. We value the stock at 22.5x FY25E EPS, implying a TP of ₹1,600. ”