Shares of Infosys soared 4.76% to reach a fresh 52-week high at Rs 1,843 per share on the BSE Sensex during Friday’s intraday deals. By 09:16 AM, Infosys was trading at Rs 1,814 on the NSE. Meanwhile, Infosys ADRs listed on the New York Stock Exchange also surged over 8%, settling at $22.25 following the company’s release of its Q1 results for the fiscal year 2025.
Infosys Q1 Earnings
Infosys reported a 3.7% quarter-on-quarter increase in revenue from operations, reaching Rs 39,315 crore in April-June. However, its consolidated net profit dropped by approximately 20% sequentially to Rs 6,368 crore, mainly due to a high base effect from a tax refund in the previous quarter. Despite the decline in net profit, both the bottom line and top line exceeded market expectations. Additionally, Infosys raised its revenue growth guidance for the current fiscal year to 3-4%, up from the previously projected 1-3%, which buoyed investor sentiment.
What Should Investors Do Now?
Nuvama Institutional Equities analysts highlighted that revenue growth received a 50 basis points boost from pricing benefits on a project. Even without this boost, growth exceeded expectations. The BFSI (Banking, Financial Services, and Insurance) segment showed a 7.6% growth after six quarters of decline, driven by large deal ramp-ups and the absence of one-off events. Other segments like life sciences and manufacturing also grew by 3.3% each, while energy, utility, and telecom grew by 1-3% quarter-on-quarter. Conversely, Hitech and retail segments lagged with a 5% and 0.3% decline, respectively.
Earnings before interest and tax (EBIT) margins were at 21.1%, supported by one-off projects but offset by higher variable pay and leave encashment costs. Infosys signed 34 large deals worth a total contract value of $4.1 billion, marking a 79% year-on-year increase but an 8.9% quarter-on-quarter decrease. The company’s headcount also reduced by 1,900 employees since the April quarter, bringing the total to 315,332.
“Management appears upbeat about the recovery in growth profile, though a bit guarded too, as discretionary spends remain largely on hold. We reckon Infosys will benefit disproportionately in FY25/26 from the revival in discretionary spends, just like it suffered disproportionately (versus peers) in FY24. We view it as one of the best ways to play the IT sector over the next few years,”
– Vibhor Singhal, Nikhil Choudhary, and Yukti Khemani of Nuvama.
Nuvama gave a ‘Buy’ rating to Infosys with a target price of Rs 2,050 per share.
Brokerage Opinions
Nomura, a Japanese brokerage firm, also expressed optimism about Infosys and the IT sector, noting that the EPS downgrade cycle is ending. They identified Infosys as the top large-cap IT services bet. Analysts at Nomura believe that levers from growth leverage, value-based selling, automation, and role ratio improvement will help offset headwinds like salary hikes and transition costs of large deals. They raised their FY25-26 EPS estimates by 2-3% to reflect higher revenues and margins, setting a new target price of Rs 1,950, up from Rs 1,800.
Jefferies similarly raised its target price to Rs 2,040 from Rs 1,630, maintaining a ‘Buy’ rating on Infosys. JP Morgan also remained ‘Overweight’ on the IT major, increasing its target price to Rs 1,950.
On the contrary, Motilal Oswal Financial Services (MOFSL) believes the upgraded FY25 revenue growth guidance was primarily driven by a one-time spike in India business and inorganic impacts. However, MOFSL acknowledged that strong deal wins could improve Infosys’s medium-term growth outlook. They noted that Infosys maintained its margin guidance and sees potential upside in the medium term, which they find encouraging.
Conclusion
The recent performance and strategic moves by Infosys have positioned it as a strong contender in the IT sector. With robust revenue growth, significant deal wins, and positive brokerage ratings, Infosys appears to be a promising investment for the foreseeable future.