Infosys Stocks Tumble on Revenue Miss and Lackluster Guidance
Infosys Limited's shares took a significant hit, dropping by almost 6% in early U.S. trading on Thursday, following the India-based IT giant's disappointing performance in its fourth-quarter outcomes. Despite a 30% increase in consolidated profit, which amounted to INR 79.69 billion, the company's revenue growth of 1.3% to INR 379.23 billion ($4.54 billion) fell short of analysts' expectations, which were pegged at INR 383.81 billion ($4.61 billion).
In an environment where the entire India IT sector is grappling with challenges, attributed largely to clients cutting back on non-essential projects amid inflationary pressures, Infosys provided a downbeat guidance for fiscal 2025. The company projects revenue growth to be between 1% and 3% in constant currency terms, with an anticipated operating margin ranging from 20% to 22%.
Despite the negative market reaction, Infosys executives remain optimistic, emphasizing the company's strong positioning in Generative AI and robust free cash flow. CEO and MD Salil Parekh expressed confidence in the continued trust from clients, highlighted by the record large deal value secured in the financial year 2024. "Our capabilities in Generative AI are ever-expanding, with significant work underway on client programs that leverage large language models across various domains including software engineering, process optimization, and customer support," Parekh stated.
CFO Jayesh Sanghrajka pointed out the impressive free cash flow of $848 million in Q4, marking the highest in the last 11 quarters, driven by focused efforts to improve the working capital cycle.
Analyst Perspective on Infosys' Performance
Analysts quickly reacted to Infosys' results, foreseeing continued pressure on the stock. A report from analysts at TD Cowen noted, "4Q revenue misses consensus by -1% as does FY25 growth guide of 1-3%, with a mixed macro environment persisting." Concerns were also raised over the slow conversion of solid large deal bookings valued at $4.5 billion and a slight reduction in headcount without any immediate plans for new hiring.
This scenario illustrates the broader challenges faced by the Indian IT sector amidst a cautious approach from clients due to macroeconomic uncertainties. Despite Infosys' assurance of its strength in innovation and financial flexibility, investors remain watchful as the market navigates through a period of adjustment.
Analyst comment
Negative news: Infosys Stocks Tumble on Revenue Miss and Lackluster Guidance
As an analyst, the market is likely to experience continued pressure on Infosys’ stock due to the disappointing performance and downbeat guidance. The slow conversion of large deal bookings and caution from clients amid macroeconomic uncertainties could further impact the market. Investors will remain cautious during this period of adjustment for the Indian IT sector.
