Infosys (INFO IN) – Q2FY27 Result Update – Cloud of uncertainty, valuations remain stretched – Downgrade to ‘ACCUMULATE’

INFO’s Q2FY27 revenue growth of 1.2% QoQ CC (organic growth of ~0.8%) was marginally ahead of our estimate of 1.1%. Despite healthy deal wins, growth was constrained by softer volumes, lower-than-anticipated pricing amid heightened competitive intensity and subdued discretionary spending, particularly in Retail and Hi-Tech. Management highlighted that geopolitical tensions, inflation and tariffs are extending client decision cycles, while AI-led productivity commitments are driving pricing pressure across industries. Manufacturing also remained under pressure from lower revenue at a large client, although Financial Services, Energy & Utilities and Healthcare continued to show healthy traction. AI revenue grew to US$540mn (10.5% of revenue vs. 8.2% in Q1), while large deal TCV remained robust at US$5.2bn, with 62% net new, including a US$2bn+ seven-year mega-deal that provides better organic revenue visibility in FY28E. Reflecting weaker-than-expected H1 performance and a cautious demand outlook, management lowered FY27 revenue growth guidance to 1–2% CC, while retaining its 20–22% EBIT margin guidance. We reduce our FY27E CC revenue growth estimate to 1.8% from 2.0%, while retaining FY28E/FY29E estimates, supported by the expected ramp-up of the mega-deal from Q4FY27 onwards. EBIT margin in Q2 declined 10bps QoQ to 21.0%, below our estimate of 21.5%, while H1 margin stood at 21.0%. Factoring in the Q2 margin miss and expected wage hikes & furlough-related headwinds in H2, we lower our FY27E/FY28E/FY29E EBIT margin estimates to 20.8%/21.1%/21.3% from 21.2%/21.3%/21.4%. We assign PE of 14x (15x earlier) to Sept. 28 EPS to arrive at a TP of Rs. 1,200 (earlier 1,300). Downgrade our rating to ACCUMULATE from BUY due to stretched valuations and blurry outlook.