Infosys ADR share price cracked more than 6% in Thursday’s trading session on NYSE Post company declared its Q3 earnings despite it’s net profit beating street estimates. Infosys, a global leader in next-generation digital services and consulting, delivered strong and broad-based performance with $4,939
million in Q3 revenues, growth of 1.7% sequentially and 6.1% year on year in constant currency.
Operating margin for Q3 was at 21.3%, an increase of 0.2% sequentially.
Key highlights
For the quarter ended December 31, 2024
- Revenues in CC terms grew by 6.1% YoY and 1.7% QoQ
- Reported revenues at ₹41,764 crore, growth of 7.6% YoY
- Operating margin at 21.3%, increase of 0.8% YoY and 0.2% QoQ
- Basic EPS at ₹16.43, growth of 11.4% YoY
- FCF at ₹10,647 crore, growth of 91.9% YoY;
- FCF conversion at 156.1% of net profit
For Infosys, Free cash flow for Q3 was highest ever at $1,263 million, growing 90% year on year. TCV of large deal wins was $2.5 billion, with 63% net new growing at 57% sequentially. Headcount increased for second consecutive quarter.
Guidance for FY25:
- Revenue growth of 4.5%-5.0% in constant currency
- Operating margin of 20%-22%
The previous guidance had estimated revenue growth in the range of 3.75-4.5 percent for FY25. In terms of revenue from business segments, in Q3, all of them showed positive growth. Manufacturing, Energy, Utilities, Resources and Services, Hi-Tech, and Financial services saw a robust growth of up to 10.7%. In terms of geography, the Indian market saw a growth of 40.1%, Europe of 12.2%, and North America saw a growth of 4.8%. This all-around growth indicates the return on discretionary spendings.
Management commentary was largely positive, they also pointed toward demand revival and discretionary spending. “Our strong revenue growth sequentially in a seasonally weak quarter and broad-based year-on-year growth, along with robust operating parameters and margins, is a clear reflection of the success of our differentiated digital offerings, market positioning, and key strategic initiatives. We continue to strengthen our enterprise AI capabilities, particularly focusing on generative AI, which is witnessing increasing client traction”, said Salil Parekh, CEO and MD. “This has led to another quarter of strong large deal wins and improved deal pipeline giving us greater confidence as we look ahead”, he added.
Why Infosys ADR share price cracked 6%?
Now the question is, if everything is good in Q3 earnings, then why Infosys ADR share price crack 6% on NYSE? At the time of close, ADR (The American Depository Receipts) listed on the New York Stock Exchange (NYSE) plunged 6 percent, but why? The only reason that we can find is the market may be disappointed with the guidance upgrade as it may have been expecting a more robust revision.
The revenue growth guidance of 4.5 to 5% instead of earlier estimated revenue growth in the range of 3.75-4.5% may have disappointed the market. The market may be seeing this minor revision as a sign of weak Q4. While answering analyst queries in the post-earnings call, the management also acknowledged the expectations of a weaker Q4.
The company enjoyed the benefits of higher third-party revenue contribution in Q3, which aided its overall topline growth. With the reversal of those benefits in Q4, combined with the slight impact of furloughs and lower working days, the January-March quarter is likely to face some headwinds which are baked in the FY25 revenue growth guidance, the management pointed out.
Infosys also rolled out the first phase of the wage hike which came into effect on January 1 and will hurt margins in the ongoing quarter. So, these may be the reasons for the market’s cautious approach towards Infosys. Will our market reflect the ADR price pattern is not a certainty but most of the time prices in our market move insync with that of ADR.
Stock price outlook and valuation
At the estimated FY25 EPS of 63.5, the stock of Infosys is trading at a P/E of 30.3, we see the stock as fully priced and do not see much upside in stock in the near term (till Q4). Technically, the stock is trading in a range and as long as either the upper or lower end of the range is not broken, it will remain in the range. Traders can benefit by trading the stock accordingly but investors should refrain from buying new quantities.
Note– Not a buy-sell advice, please contact your registered investment advisor before investing.
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