Infosys Shares Tank Nearly 12% on Weak Q4 Earnings; What Should Investors Do Now?

Shares of Infosys were seen bracing a selloff after its Q4 earnings missed Street estimates as the Bengaluru-based company reported an 8% growth in its net profit at Rs 6,128 crore, while revenue from operations jumped 16% to Rs 37,441 crore. Both revenue and profit figures were below the analysts’ estimates.

The bears are targeting large cap IT counters following disappointing fourth-quarter results of Tata Consultancy Services Ltd (TCS) and Infosys Ltd, said analysts.

Should Investors Buy, Sell or Hold?

Phillip Capital said it has cut its FY24 and FY25 profit estimates by 5-6 per cent on sharp miss in Q4. It is now forecasting dollar revenue growth of 6 per cent for FY24 and 11 per cent for FY25, with Ebit margin of 21.5 per cent for FY24 and 21.5 per cent for FY25.

“Our bear case analysis implies PAT estimate cut of 9-10 per cent. We now value Infosys at 22 times FY25 EPS (25 times earlier), 20 per cent discount to our TCS target multiple on lower growth and margins assumptions. Price target of Rs 1,590 (Rs 1,910 earlier),” it said.

Despite calling Infosys’ January-March 2023 quarter results “shocking”, Jefferies maintained a ‘Buy’ on the second-largest IT services company for a price target of Rs 1,770 based on 24X 12m forward EPS. Key risks include weaker revenue growth, lower margin, unfavourable currency, and corporate action, the brokerage said.

After missing revenue growth guidance for FY23, Infosys is likely to guide conservatively for FY24, given increased caution in spending by clients and prevailing macro uncertainties; but the asking rate at the upper-end appears to be demanding and may require support of some mega-deal closures during FY24, Emkay Global said

“Despite near-term challenges posed by the tough macro environment, we believe Infosys is well positioned to capture the growth opportunities across digital transformation, cost efficiency and consolidation-led deals over the medium term. We cut our EPS by 4.4-6.3 per cent for FY24E/25E, factoring-in the disappointing Q4. We maintain Buy on the stock, with revised target price of Rs 1,620 per share (earlier, Rs1,700) at 22 times Mar-25E EPS,” Emkay said.

Nomura India said guidance was weak for FY24 and that growth differential with TCS is set to narrow, as the foreign brokerage downgraded the stock to ‘Neutral’ and cut its target price to Rs 1,290.

“Infosys’ guidance of 4-7 per cent YoY revenue growth (in cc) for FY24 (vs 13-15 per cent for FY23 at the start of the previous year) and our expectation of 6-8 per cent YoY guidance represent significant moderation in demand. Net new deal wins at $440 million in 4Q were the lowest reported number since the pandemic i.e:1QFY21. A widened FY24 revenue growth guidance band (300bp vs 200bp usually guided) represents higher uncertainty in the demand environment,” Nomura India said.

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