On January 11, 2023, India's IT behemoth, Infosys Ltd, disclosed its earnings for the December quarter. Following this announcement, the company's stock witnessed a significant surge of 8% on January 12, closing at Rs 1,612.75 on the National Stock Exchange (NSE). This spike in share price is particularly noteworthy given the company's relatively lacklustre performance over the previous year, where it saw a mere 1% return, starkly contrasting with the 20% returns of the Nifty and IT index.
Q3 FY24 Performance Analysis
The third quarter, traditionally a challenging period for Indian IT firms due to the holiday season in key markets like the US and Europe, saw Infosys reporting a 1.6% sequential decline in December profits. However, the firm still managed to surpass revenue estimates, achieving Rs 39,610 crore for the quarter.
A detailed look at various industry verticals shows mixed results, with manufacturing, life sciences, and energy utilities demonstrating strength, while other sectors like financial services continued to face challenges. In terms of regional performance, North America experienced a downturn, while Europe remained relatively stable.
Revised Growth Guidance and Margin Insights
Infosys has revised its forecast for the full fiscal year 2024, now expecting a Constant Currency (CC) growth of 1.5-2%, a slight adjustment from the previously estimated range of 1-2.5%. The firm experienced a small decline in its profit margins by 70 basis points (bps) during the quarter, which aligns with prior expectations. Nevertheless, the management continues to hold the operating margin forecast at 20-22%. This decision comes as the firm observes margin stabilization, largely attributed to the effective rollout of its margin enhancement program, Project Maximus.
Encouraging Trend in Deal Acquisitions
Despite a slight decrease from the previous quarter's record-breaking $7.7 billion in deal inflows, Infosys' deal acquisition pace continues to be reassuring. In the third quarter, the firm successfully secured 23 significant contracts and one exceptionally large deal. Infosys maintained robust performance in securing large deals, totalling $3.2 billion for this quarter, with an impressive 71% of these being entirely new contracts. The cumulative value of deals acquired since the beginning of the year has reached an unprecedented $13.2 billion, with 55% comprising new business. Additionally, the company has seen a substantial increase in clientele, particularly in the higher revenue categories of $100 million and $50 million.
New Strategic Acquisition
Infosys has announced its acquisition of InSemi, marking a strategic move to bolster its position in the burgeoning engineering design sector, particularly in semiconductor design and embedded services.
Despite lagging behind the Nifty and IT index in the past year, Infosys shows promising signs for the future, thanks to its increased order bookings and a potential positive shift in global economic conditions. Its performance in the recent quarter, highlighted by substantial deal acquisitions and a significant proportion of new contracts, sets a solid foundation for growth in FY25 and beyond. These recent deal wins are expected to translate into increased revenue, especially as the economic climate in the US improves.
Liquide’s Trade Recommendation
With the expected advancements and rebound of the IT sector, Liquide had initiated a ‘Buy’ recommendation on Infosys at Rs 1,517, projecting approximately 15% returns in the medium term.
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