Infosys: Order backlog provides foundation for FY25

15 Feb 2024 , 12:48 PM

Analysts of IIFL Capital Services hosted Infosys’ (INFO) management at IIFL’s Investor conference in Mumbai. On ground, INFO has seen little change in decision-making for discretionary spend by clients. Cost take out continues to be the key agenda for clients. INFO’s deal pipeline continues to expand despite the USD13.2bn large deal TCV in 9MFY24. The ramp up of the mega deals is on track for Q4, which provides comfort in terms of near-term growth visibility. Overall, INFO aspires to growth faster than industry and continue to gain market share. Management is confident of improving margins from current levels, as it continues to realise the benefits of its Project Maximus margin improvement program. INFO remains analysts of IIFL Capital Services only BUY rated large cap name. Their 12-mth TP is pegged at 22x 2YF EPS, as they forecast 9%/13% USD cc revenue/EPS Cagr over FY24-26. 

Discretionary spend remains under check: 

INFO has seen little change in the client behaviour towards discretionary spend, with cost take outs continuing to remain the focus. Annual budgeting cycle has become a lot more agile, with clients happy to tweak budgets during the year, based on the macro and hence the relevance of the same has reduced. Management indicated that clients are waiting for a more stable macro environment to start committing to more long-term transformational discretionary spends. Overall INFO aspires to grow faster than the large cap peers. 

Confident of reaping benefits of Project Maximus in FY25: 

INFO is confident that it’s Project Maximus, which is a margin improvement plan across five pillars and 20 tracks, will continue to deliver results in FY25. INFO aspires to improve margins structurally from current levels. Headcount addition is likely to remain muted in the near term, given the buffer in terms of lower utilisation and declining attrition rates. 

Mega deal ramp ups towards end of Q4 on track: 

INFO’s mega deal announcements during FY24 are on track to ramp up towards the end of FY24, and fully ramp up in FY25. INFO has announced USD13.2bn large deal TCV in 9MFY24, which provides visibility for near-term growth. Cloud migration continues to be a big opportunity for service providers with ~60% of the migration yet to happen. GenAI will likely be a big opportunity and INFO is investing heavily on it, however standalone deal sizes are still small.