In a recalibrated viewpoint following a subdued quarterly performance, Prabhudas Lilladher has reiterated its BUY call on Infosys, adjusting its target price downward from Rs 2,020 to Rs 1,630. Despite short-term macroeconomic pressures weighing on revenue guidance and deal flows, the brokerage believes that the Bengaluru-based IT giant is well positioned to weather near-term turbulence through margin defense and cost-oriented digital transformation plays. Infosys's strategy includes focusing on non-discretionary spends, expanding in AI-led services, and enhancing offshore efficiency. With EBIT margins holding steady and large deal wins providing mid-term visibility, the long-term investment thesis remains intact.

Revenue Drag: Weak Q4 Performance and Lower FY26 Growth Guidance

Infosys reported a revenue decline of 3.5% quarter-on-quarter (QoQ) in constant currency (CC) terms for Q4FY25, missing Prabhudas Lilladher’s expectations of a 1.6% drop. The topline performance was hit by lower-than-expected passthrough revenues, extended furloughs, and macroeconomic headwinds, especially in North America.

The guidance for FY26 was set between 0%–3% YoY CC growth, a stark contrast to the 4.2% growth achieved in FY25. This implies a subdued compound quarterly growth rate (~0.4%–1.7% CC) for FY26 — a material deceleration from the FY25 quarterly run-rate of 2.3%.

Margin Stability: Execution Amid Headwinds

Despite revenue softness, EBIT margin for Q4FY25 came in at 21.0%, above the consensus estimate of 20.3%, thanks to operational efficiency and internal optimization initiatives like Project Maximus.

Headwinds such as wage hikes (-140 bps), intangible amortization (-40 bps), and travel expenses (-30 bps) were offset by cost-saving levers: lower customer support costs (+80 bps), G&A savings (+30 bps), and reduced third-party expenses (+20 bps). Infosys also maintained its FY25 EBIT margin at 21.1%, within the guided band of 20%–22%.

Large Deal TCV Steady, But Not Enough to Offset Slowdown

In Q4FY25, Infosys reported large deal wins totaling USD 2.6 billion, with a healthy 63.4% as net new contracts. This follows USD 2.5 billion in Q3, yet pales in comparison to FY24’s record USD 17.6 billion.

Notably, the wins were spread across key verticals — financial services (7 deals), manufacturing (4), communication (3), and healthcare — with an equal regional split between North America and Europe. However, the reduced deal volume underscores weakening discretionary IT spending amid economic uncertainty.

Vertical and Regional Pain Points

Revenue contractions were observed across all major geographies and verticals except Hi-Tech and Communications. North America shrank by 6.4% QoQ, while India posted a sharp 10.4% QoQ decline.

In verticals, Retail (-7.7%), Energy & Utilities (-7.8%), and Life Sciences (-14.3%) were the worst-hit segments. Financial Services, Infosys’s largest vertical, declined by 2.2% QoQ. This contraction was attributed to delayed decision-making, project deferrals, and a cautious outlook on transformation programs.

FY25 in Review: Marginal Gains, Strategic Pivot

For the full year FY25, Infosys delivered:

Revenue of Rs 1,630 billion (up 6.1% YoY)

EBITDA of Rs 392 billion, with a margin of 24.1%

Net profit of Rs 267 billion (10.1% YoY growth)

EPS at Rs 64.5 and dividend payout of Rs 43 per share

Management attributed this performance to tactical pivoting toward cost-driven deals, platform consolidation, and AI-led productivity solutions. Project Maximus was cited as a key contributor to efficiency gains.

Acquisitions and Strategic Investments

Infosys has undertaken two acquisitions aimed at diversifying its offerings:

MRE Consulting (US$ 36 million): Enhances business consulting in Energy & Utilities

The Missing Link Security (AUD 98 million): A cybersecurity firm expanding Infosys's security footprint

Additionally, Mitsubishi’s minority investment in HIPUS, Infosys’s Japan JV, underscores commitment to international partnerships.

Management guided that these acquisitions will contribute 40–50 basis points to FY26 revenue but noted these impacts are not yet incorporated in base estimates.

FY26 Outlook: Strategic Levers to Anchor Growth

Infosys has reaffirmed its focus on margin levers, including:

AI adoption across new and existing deals

Value-based pricing models

Enhanced offshore delivery and utilization efficiency

20,000 fresher hires in FY26

The EBIT margin guidance for FY26 remains unchanged at 20%–22%. Management anticipates continued cost optimization demand, vendor consolidation, and automation uptake, particularly in BFSI and Energy verticals.

Valuation and Investment Thesis

Prabhudas Lilladher forecasts:

FY26 EPS of Rs 67.2 (4.1% YoY growth)

FY27 EPS of Rs 74.4 (10.7% YoY growth)

Revenue CAGR of 4% and PAT CAGR of 7.4% over FY25–FY27

The stock is currently trading at 19.1x FY27 earnings, which is below its historical average. The revised target price of Rs 1,630 is based on a PE multiple of 22x, reflecting lowered growth expectations but a still-favorable valuation.

Investor Takeaway: HOLD if In, BUY if Out — Patience is Key

While revenue guidance suggests soft quarters ahead, Infosys’s steady margins, stable large-deal wins, and operational levers support downside protection. Its diversified strategy, deep enterprise relationships, and AI-centric transformation capabilities enhance its long-term appeal.

Stock Rating: BUY
Current Market Price: Rs 1,420
Target Price: Rs 1,630
Investment Horizon: 12–18 months

Prudent investors should accumulate on dips, focusing on stability over short-term growth. The IT bellwether may not outpace peers in FY26, but its fundamentals and cost-engineering efforts ensure long-term resilience.