Infosys shares up 2% on signing $2-bn deal with existing client

Shares of Infosys climbed over 2% in opening trade on Tuesday after the IT heavyweight announced it has secured a five-year deal worth $2 billion with an existing client. The company, however, did not disclose the name of the client. This is the third major deal announcement in the current fiscal after the country’s second-largest software exporter won a $454-million contract from Denmark’s Danske Bank and $1.5 billion project from British oil and gas company bp.

“Infosys has entered into a framework agreement with one of its existing strategic clients to provide AI and automation-led development, modernisation, and maintenance services. The total client target spend over 5 years is estimated at $2 billion,” the Bengaluru-headquartered company says in a BSE filing on Monday.

Reacting to the news, Infosys share price opened higher at ₹1,433.90 against the previous closing price of ₹1,422.75 on the BSE. In the early trade so far, the IT heavyweight gained as much as 2.5% to ₹1,457.90, while the market capitalisation rose to ₹5.93 lakh crore. The stock trades nearly 13% lower than its 52-week high of ₹1,672.45 touched on December 1, 2022, whereas it has gained 20% from its 52-week low of ₹1,215.45 hit on April 25, 2023.  

The development came days ahead of Infosys’ first quarter earnings, which is slated to be released on July 20. The IT major is expected to report subdued earnings in the April-June quarter of the current fiscal due to soft demand outlook with limited large deal ramp ups during Q1 FY24.  

Analysts at ICICI Securities expect Infosys to report soft 0.8% quarter-on-quarter (QoQ) growth in constant currency (CC) terms in Q1 FY24. “With 20bps cross currency tailwind, this would imply muted 3.5% YoY growth in U.S. dollar terms. With our expectation of pickup in growth only in H2FY24E as Q2 may also remain relatively soft at 2.7% QoQ CC growth given no mega deal ramp ups in Q2,” the report notes.

The brokerage believes Infosys could narrow its revenue growth guidance to 4-6% in CC terms for FY24 from 4-7%. “We are now expecting 5.1% CC growth for INFY in FY24E with EBIT margin at 21%. With the stock currently trading at 18.4X FY25E (same as last 15-yr avg), we see attractive risk-reward for INFY with the expectation of 12.8%/12.4% CC revenue growth in FY25E/26E given its superior digital capabilities, strong partner ecosystem and management execution.”

The brokerage house has retained ‘BUY’ rating on Infosys with a 12-month target price of ₹1,613, a potential upside of 11% from the current market price.

The agency says mega deal announcements similar to the recent ones like with Danske Bank would be the key catalyst for stock re-rating providing a smooth path for sequential pick up in H2FY24E and double digit revenue growth in FY25E.

On June 25, 2023, Infosys signed a $454-million deal with Denmark’s Danske Bank to accelerate the bank’s digital transformation initiatives with speed and scale. As part of the deal, the IT major will acquire Danske Bank’s IT center in India, where over 1,400 professionals are employed. The tenure of the contract is 5 years, with an option to renew for one additional year for a maximum of three times. The deal is expected to be completed before Q2 FY24, subject to customary closing conditions.

On May 17, 2023, Infosys inked a mega deal with energy company BP to provide comprehensive application services. The contract was valued at around $1.5 billion, which is estimated to be the largest since its deal with Daimler in late 2020.

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