Infosys (INFO IN) – Q3FY26 Result Update – Early green shoots in discretionary paints better outlook for FY27 – BUY

The revenue growth performance (+0.6% CC QoQ) was above our estimates (-0.5% QoQ CC), partly attributed to the ramp up of NHS deal and uptick in discretionary spends. The growth momentum within key verticals continued through Q3 despite having seasonality and no pass-throughs. Additionally, the growing client interest in embedding AI into business functions and processes partially supporting the overall topline growth. The large deal TCV was encouraging at USD4.8b (+60% QoQ) in Q3, even excluding the NHS deal (~USD1.6b), it exceeded Q2 wins that translates 9MFY26 deal TCV growth of 30% YoY. The management was hinting a positive outlook for FY27, where it expects BFSI and ER&U to contribute substantially to the topline on the back of notable wins and pick up in discretionary spends. The encouraging deal TCV, green shoots in discretionary and growing traction around advanced AI are setting up strong foundation for better revenue growth in FY27E/FY28E. On margins, we are keeping a tight band due to having higher appetite for investments in S&M, hiring/re-skilling AI talents and incremental cost of Labour Code, which partly get offset by project Maximus. We are baking in revenue growth of 3.2%/6.0%/6.8% CC YoY and margin improvement of flat/30bps/40bps YoY in FY26E/FY27E/FY28E, respectively. We assign 22x to FY28 EPS that translates to a TP of Rs. 1,900, retain BUY.