Infosys (INFO IN) – Q2FY26 Result Update – Strong H1 performance but slower H2 to follow… – BUY

The revenue growth performance (+2.2% CC QoQ) was above our estimates (+1.8% QoQ CC), attributed to broad-based growth in verticals and geographies. The inorganic contribution was 20bps QoQ CC. Despite the quarterly outperformance the underlying demand continues to be on a similar line of Q1. The short-burst discretionary deals continue to see a pullback, while large deals are prioritized for cost reduction, vendor consolidation and AI infusion to derive better productivity. We believe, unless the AI deployment re-prioritized to growth initiatives, keeping the topline stable and predictable would be challenging. Although the large deal TCV was strong in Q2, the usual furloughs and holidays impact would weigh on the topline in H2. With the revised guidance, the ask-rate for the rest of the year translates to -0.3 to -1.5% CQGR. We are passing on Q2 revenue beat, while we expect the large deal (announced off late) ramp up to partially support the topline in H2. On margins, slight escalation on subcon and lower utilization pressurized margins in Q2, although project Maximus and currency tailwind offset the drag. H2 is expected to be weak and over-utilization of levers would provide lesser headroom for margin improvement. We are baking in revenue growth of 2.5%/5.8%/6.7% CC YoY and margin improvement of 10/50bps/40bps YoY in FY26E/FY27E/FY28E, respectively. We retain our “BUY” rating with TP of Rs. 1,780 (earlier Rs. 1,760).