Infosys Shares Tank 5% Post Q3 Earnings; Should You Buy, Sell Or Hold?

SOURCE : NEW18 NEWS

Last Updated:January 17, 2025, 09:45 IST

Infosys shares dropped nearly 5% to a low of Rs 1,832 on Friday, January 17, following the company’s Q3 earnings; Should you invest?

Infosys shares dropped nearly 5% to a low of Rs 1,832 on Friday, January 17, following the company’s Q3 earnings report. Despite posting an 11% YoY growth in consolidated net profit, which reached Rs 6,806 crore, the results did not boost investor sentiment on D-St. Revenue from operations also rose by 8% YoY to Rs 41,764 crore.

While Infosys’ October-December earnings exceeded market expectations, its revised revenue growth guidance, signaling a potentially weaker Q4, may have contributed to the decline in its stock price.

The IT major reported strong deal wins in Q3, leading the management to revise its FY25 revenue growth forecast to 4.5-5% in constant currency terms. However, analysts, including Jefferies, pointed out that although the Q3 beat led to an upward revision of FY25 revenue guidance, the unchanged Q4 forecast suggests possible seasonal weakness.

BoFA Securities shared a similar view, projecting a 1% sequential revenue decline in Q4, driven by potential reductions in third-party items or cautious management positioning.

In response to these concerns, the company acknowledged the possibility of a softer Q4 during its post-earnings call, attributing it to factors such as furloughs, fewer working days, and a reversal of third-party revenue.

Additionally, uncertainty over the margin impact of the company’s wage hike plan, set to be implemented in two phases, further raised investor concerns. The first phase was rolled out on January 1, with the second phase scheduled for April 1. While the company indicated that the margin impact would be felt in Q4 FY25 and Q1 FY26, it refrained from specifying the exact magnitude of the impact.

Despite these challenges, other aspects of Infosys’ Q3 earnings and outlook remained positive. The company’s EBIT margin improved by 20 basis points sequentially to 21.3%, with FY25 EBIT margin guidance maintained at 20-22%.

Infosys also reported a Total Contract Value (TCV) of $2.5 billion for Q3, with 63% of the deals being new, surpassing the previous quarter’s $2.4 billion despite seasonal challenges. CEO Salil Parekh expressed confidence, citing an improved deal pipeline and growing discretionary spending in Europe’s financial services sector and US retail and consumer segments.

Analysts Views on Infosys Stock:

Nuvama: Maintained its ‘Buy’ rating, raising the target price to Rs 2,350 from Rs 2,250. The upgrade reflects strong momentum in the Banking, Financial Services, and Insurance (BFSI) sector. However, Q4 is expected to be seasonally weak, with clients prioritizing cost-cutting deals over discretionary spending.

Morgan Stanley: Maintained an ‘Overweight’ rating with a target price of Rs 2,150. While the Q3 revenue growth was stronger than expected, the new guidance for Q4 FY25 implies a decline, suggesting potential challenges ahead.

BofA Securities: Retained its ‘Buy’ rating with a target price of Rs 2,150. A sequential revenue decline of 1% is expected for Q4 FY25, driven by potential declines in third-party items or conservative management. Discretionary spending is recovering in the European BFSI and US retail/CPG sectors, but remains stable in the hi-tech and communications industries.