Infosys: Gearing up for a better year; no change in demand yet

15 Mar 2024 , 12:00 PM

Analysts of IIFL Capital Services recently met with Jayesh Sanghrajka, CFO-designate, and the IR team to understand about long-term strategy and execution. Jayesh highlighted that the key tenets of INFO’s long-term vision stay intact with a focus on top-quartile growth and improving margins in the medium term. INFO’s disproportionate market share gain in the mega deal landscape is a function of their strong capabilities and partnership/alliances with the hyper-scalers and new-tech companies. They are ranked among the best by various market research firms on capabilities, close to par with Accenture. On ground, INFO has seen little change in decision-making for discretionary spend by clients. INFO’s deal pipeline remains robust despite the USD13.2bn large deal TCV in M9FY24. The ramp up of mega deals is on track for Q4, which provides comfort in terms of near-term growth visibility. INFO remains analysts of IIFL Capital Services’ only BUY rated largecap name. Their 12-month TP is pegged at 22x 2YF EPS, as they forecast 9%/13% USD cc revenue/EPS Cagr over FY24-26.

Discretionary spend still under check:

INFO has seen little change in the client behaviour towards discretionary spend. Annual budgeting cycle has become a lot more agile; and hence, its relevance has reduced. Clients are awaiting more stable macro to start committing to more long-term transformational discretionary spends. On gen-AI, they are already partnering with companies and are able to execute solutions for clients using gen-AI. Cloud migration continues to be a big opportunity for service providers with ~60% of the migration yet to happen.

Confident of reaping benefits of Project Maximus in FY25:

INFO highlighted that they have seen the lowest margin compression among large caps in the past decade. The company is confident that the Project Maximus — a margin improvement plan across five pillars and 20 tracks, will continue to deliver results in FY25. Headcount addition is likely to remain muted in the near term, given the buffer in utilisation and low attrition.

Stable management is key:

INFO reiterated that the recent management exits have not hurt them, as their top-100 business heads have seen lowsingle-digit attrition in the past five years. Also, most of the key management positions have been filled internally with people who have been with the company for past ~20 years. Hence, there is no execution risk on business.