Stock Price Reaction
Shares of Infosys experienced a sharp decline of 5% on October 18, 2024, following the release of its Q2 FY25 financial results. The stock price fell to ₹1,869 as investors reacted to the company’s lower-than-expected performance and revenue guidance.
Q2 Financial Performance
For the second quarter ending in September 2024, Infosys reported a profit after tax (PAT) of ₹6,506 crore, marking a 5% year-on-year increase from ₹6,212 crore in the same period last year. However, this figure fell short of market expectations, which had anticipated a PAT of ₹6,700 crore. Revenue from operations grew by 5% YoY, reaching ₹40,986 crore, compared to ₹39,360 crore in the same quarter of the previous year.
Revised Revenue Guidance
While Infosys raised its FY25 revenue growth guidance to a range of 3.74% to 4.5%, up from 3% to 4%, analysts noted that this adjustment was still below market expectations. Motilal Oswal pointed out that although there was broad-based revenue growth, the company’s cautious outlook on discretionary spending led to investor disappointment.
Challenges Ahead
The company highlighted ongoing challenges, particularly outside the US banking sector, with a limited recovery in discretionary expenditures. Furthermore, Infosys announced a postponement of wage hikes for the fourth quarter of FY25 and the first quarter of FY26, signaling potential uncertainties in the near term.
Analyst Insights
Motilal Oswal stated, “The guidance was upgraded by just 50 basis points at the top end, despite a strong 3.5% compound quarterly growth rate (CQGR) in the first half of the year.” This suggests a muted CQGR of approximately 0.5% for the second half of FY25, indicating that while client pessimism may be stabilizing, a significant rebound in discretionary spending is still awaited.
Small Deal Optimism
Despite the challenges, there is some optimism regarding Infosys’ performance in smaller deals, defined as those worth less than USD 50 million. While Infosys has refrained from labeling this as a trend, analysts believe it could signal early signs of business flow returning, potentially positioning the company favorably for FY26.
Dividend Declaration
In addition to its financial results, Infosys declared an interim dividend of ₹21 per equity share, with October 29, 2024, set as the record date. The dividend payment is scheduled for November 8, 2024.
Conclusion
Overall, while Infosys reported a year-on-year profit growth, the market’s reaction reflects concerns over future performance and the company’s cautious outlook. As the tech sector navigates challenges, all eyes will be on how Infosys adapts in the coming quarters.
