Infosys Receives Bullish Recommendation from Prabhudas Lilladher, Target Price Set at Rs 1570

Infosys' Revenue Growth Below Estimates, FY27E Growth Guidance Reflects Incremental Risks

Infosys' recent revenue growth performance has fallen short of expectations, with a quarter-over-quarter (QoQ) compound annual growth rate (CAGR) of -1.2%, contrary to Prabhudas Lilladher's estimates of -0.6% QoQ CAGR. This underperformance is attributed to seasonal fluctuations and slower deal ramp-ups. Additionally, geo-political conflicts and the impact of artificial intelligence (AI) deflation pose incremental risks to the company's growth prospects in FY27E.

Despite these challenges, Infosys has reported encouraging large deal wins, with a total of 96 deals secured, including three mega deals. Notably, the net-new large deal value (NN large deal TCV) stood at USD 8.2 billion, representing a 24% year-over-year (YoY) increase. However, the guidance for organic revenue growth (1.5%-3.5% CAGR) takes into account the planned ramp-down with a European client and the right-shoring impact, which would otherwise have contributed to additional growth in FY27E.

The management has expressed confidence in the BFSI (Banking, Financial Services, and Insurance) and ER&U (Energy, Resources, and Utilities) verticals, which are expected to contribute substantially to the company's topline growth, driven by notable large wins in these sectors (80% of NN ER&U). On the margin front, Prabhudas Lilladher is maintaining a tight band due to the company's increased investments in sales and marketing (S&M) and hiring/re-skilling AI talents, which are partly offset by the project Maximus.

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Outlook and Recommendations

Prabhudas Lilladher is projecting compound annual growth rates (CAGR) of 3.3% in FY27E, translating to overall CAGR growth of 5.0% and 6.3% in FY27E and FY28E, respectively. The research house is keeping its margin estimates largely unchanged. A price-to-earnings (PE) ratio of 18x (20x earlier) is assigned to FY28 earnings per share (EPS), with a target price of Rs. 1,570. The recommendation for Infosys is retained as BUY.