According to analysts, Infosys’ guidance raise was mostly driven by the purchase of In-tech as well as a one-time sales bump in its India unit.
Infosys’ first-quarter results exceeded Wall Street expectations on several fronts. With strong growth, optimistic commentary, and upgraded guidance, the IT major’s valuation gap with Tata Consultancy Services Ltd (TCS), which is currently 15%, should narrow in the future, analysts said, recommending a ‘Buy’ on the stock, citing strong recovery and an attractive dividend yield of more than 3%.
During the last tech cycle, 2009-16, Infosys lost market share to peers like TCS and HCL Technologies due to a lack of a significant presence in infrastructure management services (IMS) and new markets. Analysts believe digitalization is a more powerful catalyst for Infosys this time than IMS, which increased market capitalization by 9.8-14.5 times between 2009 and 2016.
According to PhillipCapital, Infosys results for the June quarter were highly encouraging, including a beat on topline and margins, broad-based growth, margin recovery, record large agreements, robust cash generation, and a revised FY25 forecast.
“CC revenue increased 3.6% QoQ, which is the greatest growth in the prior seven quarters and above street projections of 2.5% growth. It suggested a price target of Rs 2,140 for Infosys and stated that margins at 21.1% were also higher than projections at 20.4%.
The brokerage stated that it anticipates Infosys’ value differential with TCS to close in the future and listed price, nearshoring, automation, subcontracting, and cost optimization for third parties as Infosys’ levers.
In constant currency (CC) terms, Infosys increased its outlook for FY25 revenue growth to 3–4% YoY from the previous range of 1-3%. According to MOFSL, the one-time, 45% QoQ rise in the company’s India division was the primary factor in the quarter’s growth outperformance.
Strong Revenue Growth
“CC revenue increased 3.6% QoQ, which is the greatest growth in the prior seven quarters and above street projections of 2.5% growth. It suggested a price target of Rs 2,140 for Infosys and stated that margins at 21.1% were also higher than projections at 20.4%.
Future Value Differentiation with TCS
The brokerage stated that it anticipates Infosys’ value differential with TCS to close in the future and listed price, nearshoring, automation, subcontracting, and cost optimization for third parties as Infosys’ levers.
“The push from the one-time revenue increase in its India business and the purchase of In-tech (which contributed 0.8% of sales for FY25E) were the main drivers of the guidance upgrade. Nonetheless, positive remarks were made regarding the financial services sector and North America’s economic recovery. Despite ongoing pressure on discretionary spending, MOFSL stated that “we think the cycle is turning and clients are finally considering re-investing savings.”
The brokerage aims to purchase shares of Infosys for Rs 2,000.
According to Nuvama, the management seemed positive and expected a rebound in US-BFS as well as a stronger H1 than H2. The FY25E and FY26E EPS projections from this brokerage were increased by almost 2% apiece. “We are introducing FY27 estimates and rolling forward the valuation to 25 times Sep-26E PE, yielding an increased target price of Rs 2,050 (earlier Rs 1,720); reiterate ‘BUY’,” stated the report.
Concerning Infosys, Nirmal Bang has kept its “Accumulate” rating but raised its share price objective to Rs 1,985, valuing the company at a ratio of 24.3 times June 2026E EPS. “We have continued to apply a 10 percent discount to the target PE multiple assigned to TCS,” it stated.
