Infosys soars 6% after analysts say worst behind as Q3 deal wins rekindle hope

While Infosys’ net missed the Street’s estimate, its revenue was a tad above expectations. Net new deal wins also remained strong, which makes analysts hopeful of a recovery in the coming quarters

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Shares of India’s second largest IT services company Infosys surged nearly 6 percent in opening trade on January 12 after brokerages expect the worst for the company to be behind on the back of its strong new deal wins in Q3.

At 09.22 am, shares of Infosys were trading at Rs 1,575.10 on the NSE.

Large deal wins for Infosys remained strong at $3.2 billion in Q3, with 71 percent of them being net new deals.

Global brokerage firm Jefferies was impressed with the company’s net new order book which stood at $2.2 billion. The brokerage said strong deal wins provide comfort to its expectations of a 13 percent EPS CAGR over FY24-26. It retained its “buy” call on the stock with a price target of Rs 1,740.

Fuelled by similar expectations of a recovery in the coming quarters, the American Depository Receipts (ADRs) of Infosys also settled 4 percent higher at $18.82 on the NYSE overnight.

The third quarter is generally a weak one for Indian IT companies due to the holiday season in the US and Europe, which are their major clients, on account of furloughs and fewer working days.

On that account, the firm reported a 1.7 percent sequential decline in the December profit, well below the Street’s estimates. Regardless, Infosys managed to record a consolidated revenue of Rs 38,821 crore for the quarter, marginally above Moneycontrol’s estimates of Rs 38,630 crore.

Also Read | Infosys ADR spikes 5% despite weak Q3 performance

The operating margin slipped 70 basis points to 20.5 percent sequentially, dragged by furloughs and salary hikes. The company, however, retained its operating margin guidance of 20-22 percent.

One basis point is one hundredth of a percentage point.

HSBC was another brokering firm that maintained its “buy” call on Infosys and assigned it a price target of Rs 1,620. The brokerage said the Q3 season started with a bit of positivity for Infosys as it reported a beat on the topline, while deal wins remained decent.

The Q3 earnings of Infosys was the first set of decent results after back-to-back disappointments, Nuvama Institutional Equities said. “Deal wins, while modest, had a high share of net new (71 percent), which
should boost growth for FY25 and beyond. We upgrade FY24/25/26 estimates by -0.3 percent/1.3 percent/2.2 percent,” the brokerage said in its report.

The firm believes that Q3 could be the bottom for the earnings downgrade cycle for Infosys and it expects strong deal wins of the last few quarters to convert into revenue even as the US macro environment becomes favourable.

Baking that in, Nuvama raised its price target for Infosys to Rs 1,850, while retaining the “buy” call.

Nomura also hailed the company’s good execution and strong new deal wins. Since the management commentary didn’t hint towards discretionary demand revival, the firm chose to retain its “neutral” call on the stock with a price target of Rs 1,500.

Also Read | Infosys Q3 results: Net profit falls 7% YoY to Rs 6,106 crore; misses estimates

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