Infosys (INFO IN) – Q1FY27 Result Update – Weak Q1 resets FY27 growth expectations – BUY

INFO’s organic revenue performance was flat QoQ CC, below our est. of 0.8% QoQ CC, attributed to softer volumes, a one-off EU&R client’s project termination (~50bps QoQ impact) and weakness in a large European manufacturing client. EBIT margin at 21.1% (+20bps QoQ) was broadly in line despite muted growth, aided by currency tailwinds and Project Maximus. Management revised FY27 revenue guidance to 1.5-3.0% CC, which includes ~1.7% inorganic contribution from acquisitions, implies an organic growth outlook of ~flat-1.3% CC. The guidance factors in 100bps headwind from the large European manufacturing client and ~75-100bps impact from offshore delivery transition, along with the effect of weaker Q1 volumes. AI services revenue continued to scale rapidly to 8.2% of revenue (vs. 5.5% in Q3FY26), partly plugging the leakages into the traditional bucket despite productivity pass-on. Large deal momentum remained healthy at US$3.6bn TCV with 61% NN, including three ~US$400mn deals and 20% of wins from vendor consolidation. However, being selective on deal economics, prolonged decision-making and strategic offshoring are blurring the near-term growth outlook. Hence, we lower our FY27E/FY28E CC revenue growth est. to 2.0%/3.5% (from 4.0%/4.7% earlier), while maintaining EBIT margin estimates at 21.2%/21.4%, as Project Maximus, currency benefits and improved utilization should largely offset wage hikes, acquisition dilution and continued AI investments. Consequently, we cut our FY27E/FY28E EPS estimates by 1.8%/2.7%. The valuation comfort (12x FY28E EPS) and payout yield of ~6% should provide near-term cushion to the price. We assign PE of 15x (16x earlier) to FY28 EPS with a TP of Rs. 1,240. Retain BUY