Deven Choksey research has suggested BUY Call for technology major Infosys after robust quarterly numbers and a positive guidance. Infosys' Q3FY26 performance underscores a company navigating a complex macro environment with discipline, resilience, and a clear strategic compass. Revenue growth remained steady, margins compressed due to deliberate investments, and deal momentum strengthened materially—particularly in AI-led transformation and large contracts. Management upgraded constant-currency revenue guidance while maintaining margin discipline, signaling confidence in execution despite near-term cost pressures. The stock, trading at Rs 1,609, offers a potential upside of 15.1% to the revised target of Rs 1,852, supported by robust deal visibility, improving attrition trends, and accelerating AI adoption across key verticals.

Quarterly Performance: Growth Holds Firm, Margins Reflect Investment Cycle

Revenue for Q3FY26 came in at Rs 454,790 million, registering a 2.2% sequential and 8.9% year-on-year increase. The growth, though modest, remained resilient against a high base and seasonal headwinds, reflecting stable demand across core service lines.

EBITDA declined 9.7% QoQ to Rs 95,100 million, with margins compressing to 20.9%, down from 23.7% in the previous quarter. The margin contraction was driven by elevated cost of revenue and higher SG&A expenses as the company continued to invest in sales, delivery capacity, and AI capabilities.

EBIT stood at Rs 83,550 million, down 10.7% sequentially, translating into an EBIT margin of 18.4%, a contraction of 265 basis points QoQ. Management emphasized that these pressures are transitional rather than structural.

Profitability Trends: Earnings Dip but Balance Sheet Remains Resilient

Profit after tax (PAT declined 9.6% QoQ to Rs 66,540 million), while YoY decline was limited to 2.2%. PAT margins moderated to 14.6%, reflecting operating leverage pressures rather than demand weakness.

Notably, Infosys absorbed one-off labor code impacts during the quarter, with management indicating a modest recurring impact of roughly 15 basis points going forward—already factored into margin guidance.

Geographic and Vertical Mix: Europe Leads, BFSI Reaccelerates

Europe emerged as the standout geography, delivering 7.2% YoY constant-currency growth, aided by strong public sector wins and healthcare-led programs.

Financial Services continued to show improving discretionary spend, driven by AI modernization, vendor consolidation, and platform transformation. Energy & Utilities gained momentum as infrastructure investment, data center build-outs, and decarbonization initiatives gathered pace.

Manufacturing and Hi-Tech remained soft due to auto sector weakness and tariff-related uncertainty, while Retail and Communications continued to prioritize cost optimization over growth.

Deal Momentum: AI-Centric Pipeline Strengthens Visibility

Large deal TCV for Q3FY26 stood at USD 4.8 billion, with 57% net new deals across 26 contracts. The nine-month TCV of USD 11.7 billion already exceeds FY25 full-year levels, signaling a robust pipeline.

Management highlighted that AI-led engagements are increasingly outcome-based and not dilutive to pricing—challenging a key market concern around margin sustainability.

AI Strategy: From Optional to Mission-Critical

Infosys has decisively positioned AI as a structural growth lever rather than a tactical offering.

The company works with nearly 90% of its top 200 clients on AI initiatives, has delivered more than 500 AI agents, and generated over 28 million lines of code using AI tools.

Six clearly defined AI value pools—including AI agents, AI-led software development, legacy modernization, and the Topaz Fabric platform—are expected to drive medium-term differentiation and wallet share expansion.

Talent Metrics: Attrition Eases, Capacity Built Ahead of Demand

LTM voluntary attrition declined to 12.3%, improving nearly 200 basis points sequentially. The easing attrition trend reflects stabilizing labor markets and improved employee engagement.

Utilization (excluding trainees) stood at 84.1%, marginally lower QoQ, as Infosys deliberately built capacity to support upcoming deal ramps—particularly large, multi-year contracts.

Guidance Update: Confidence Without Overreach

Infosys raised its FY26 constant-currency revenue growth guidance to 3–3.5%, while maintaining its operating margin band of 20–22%.

Management expects FY27 to outperform FY26, supported by large-deal ramp-ups, BFSI recovery, Energy & Utilities momentum, and AI-led transformation demand.

Valuation Framework and Investment View

Deven Choksey Research has rolled forward its valuation base to December 2027 estimates, valuing Infosys at 23x forward earnings.

Target Price: Rs 1,852
Current Price: Rs 1,609
Potential Upside: 15.1%

The valuation remains justified by strong cash generation, disciplined capital allocation, and sustained return metrics.

Key Financial Snapshot (Rs million)

Final Takeaway: Execution Over Exuberance

Infosys is not chasing growth at the expense of discipline. Instead, it is investing deliberately in AI, talent, and client partnerships while maintaining balance sheet strength and shareholder returns. Margin compression appears cyclical, not structural. With improving deal visibility, easing attrition, and a clearly articulated AI roadmap, Infosys remains well-positioned for a stronger FY27.

Deven Choksey Research reiterates a BUY rating on Infosys Ltd. with a target price of Rs 1,852.