Is Infosys Still a Good Buy After Q4 Results?

India's IT industry contributes over 7% to the country's GDP and employs more than 5 million (m) professionals. It has long been a vital driver of economic growth and global digital services.

With exports crossing US$ 250 billion (bn) in FY24, the sector remains a key pillar of India's global standing in technology and innovation.

Infosys, as the second largest IT services company in the country, plays a central role in the software ecosystem. It serves clients across more than 50 countries with a strong focus on digital transformation, cloud, and AI-driven services.

However, a combination of global macroeconomic uncertainty, delayed enterprise spending, and cautious IT budgets has clouded the outlook for the sector.

Against this backdrop, Infosys's Q4 results offer crucial insights-not just into its own performance, but also into the evolving health of the industry.

The pressing question now is: does Infosys remain a good investment bet in this shifting landscape?

Inside Infosys' Business

Infosys provides consulting, technology, outsourcing and next-generation digital services to enable clients to execute strategies for their digital transformation.

The company derives 57% of its total revenue from Digital Services segment.

The segment comprises of services and solution offerings of the group that enables clients to transform their businesses.

It includes offerings that enhance customer experience, leverage artificial intelligence (AI)-based analytics and big data, engineer digital products and internet of things (IoT), modernize legacy tech systems, migrate to cloud applications and implement advanced cyber-security systems.

The core services segment accounts for the rest 43% of the firm's total revenue.

This segment comprises of traditional offerings of the group that include application management services, proprietary application development services, independent validation solutions, product engineering and management, infrastructure management services, traditional enterprise application implementation and support and integration services.

The company also offers various services through its key products and platforms viz. Infosys Finacle, Infosys McCamish, Panaya, Infosys Meridian, Helix, Equinox, Wingspan, Edgeverve, Stater, and others.

At present, the company caters to around 185 Fortune 500 companies including companies/ organizations like ICICI Bank, Daimler Mercedes-Benz, HSBC Bank, Goldman Sachs, etc.

Coming to the financials, the company's revenue has grown at a compounded average growth rate (CAGR) of 11.6% in the last five years while its net profit has grown at a CAGR of 10.5%.

The company's five-year average return on equity (RoE) and return on capital employed (RoCE) were 31.9% and 43%, respectively.

As of 31 March 2025, the company is debt free.

Infosys' Performance in Q4 FY25

For Q4 FY25, revenue stood at Rs 409.3 bn, up 7.9% YoY.

In FY25, Infosys saw US$ 11.6 bn in large deal total contract value (TCV), with Q4 TCV at US$ 2.6 bn. A total of 96 large deals were closed in FY25 out of which 24 were done in Q4 alone.

The operating profit (EBITDA) for the quarter increased by 12.4% YoY to Rs 98.7 bn. EBITDA margin increased to 24.1% from 23.2%, during the same period.

Couple of headwinds reduced Infosys's operating margin by 1.8% (180bps). 1.4% of this was due to employee compensation increases and 0.4% due to accounting costs from past acquisitions.

A few tailwinds helped Infosys's operating margin by 1.5% (150bps). 0.8% of this was from lower post-sale customer support costs, 0.3% from internal efficiencies under Project Maximus, 0.2% from favorable currency movements, and 0.2% from reduced third-party expenses.

Overall, Infosys had 1.8% in margin headwinds (negative impact) and 1.5% in tailwinds (positive impact), so the net impact on margin would be a slight decline of 0.3%.

The net profit (PAT) fell by 11.8% YoY to Rs 70.3 bn. PAT margin came in at 17.2% versus 21% (YoY).

Additionally, the company reported a record free cash flow of US$ 4.1 bn in FY25 (129% of net profit; 112% ex-tax refunds).

The board of directors have recommended a final dividend of Rs 22 for FY25, subject to shareholder approval.

Infosys ended FY25 with 323,578 employees up 6,000 YoY. The attrition was contained at 14.1%.

Management's Future Guidance

For FY26, the management has guided for 0-3% revenue growth in constant currency terms.

However, this guidance excluded the impact of the newly announced US energy consulting acquisition pending closure.

The guidance range shows increased uncertainty. The lower end assumes things could get worse, while the upper end expects conditions to stay the same or improve slightly.

Further, the operating margin is guided to range between 20% to 22% as the management suggested that they will try to improve margins from where they are now.

Going forward, the company plans to hire 20,000+ freshers in FY26 in line with backfilling attrition and growth needs.

Strengths, Risks, and Broader Trends

Highlighting the uncertain macro environment, the management cited that the recent global tariff announcements have especially impacted manufacturing, retail, and hi-tech segments.

Additionally, the company is wary of the delays and elongation in client decision cycles, especially for discretionary spending, large deals, and ongoing geopolitical events.

No material ramp-downs or cancellations were seen by Infosys so far in large deals, but short cycle deals and discretionary spending will remain under pressure.

Going forward, the company's deal pipeline remains robust, but mega deals are fewer and tend to have longer gestation and ramp-up periods.

The management expects a decline in third-party cost pass-through in FY26, reversing the trend of the last few years when it increased to 8% of revenue.

Infosys' clients are moving from use case-based approach to AI-led transformation with AI agents playing a critical role. Thus, the company has developed over 200 AI agents and 400+ AI projects are underway.

It continues to strengthen its enterprise AI capabilities, mainly focusing on generative AI, which has led to an increase in its number of customers.

It is working on several projects with its clients to help them benefit from a generative AI tool called Infosys Topaz. These projects are related to software engineering, process optimization, customer support, advisory services, and sales and marketing.

As a result of increased AI adoption by its clients, the company has recorded AI productivity benefits in the range of 20-40% in customer service and 20-25% in software development.

The margin expansion initiative of Infosys, named Project Maximus launched in early 2024, continued to deliver in this quarter. The management believes further margin improvement is possible through ongoing Maximus tracks.

Additionally, Infosys' recent strategic moves in terms of acquisitions, partnerships, and geographical positioning includes acquisition in the energy consulting segment in US.

This is a "critical area" in the U.S. market, likely due to ongoing investments in energy transition clean energy, efficiency, etc..

The company also bought a cybersecurity firm in Australia. This move has strengthened Infosys' capabilities and presence in the Australian market, potentially opening doors to more regional clients.

Adopting a collaborative expansion strategy, Infosys tied up with Mitsubishi as a new strategic partner in a joint venture (JV). Infosys' ownership in that JV was reduced by 2%.

Also, Infosys does not significantly rely on contracts from the US government or public sector. This matters because if the US government introduces protectionist policies (e.g., favoring local firms), Infosys won't be heavily affected, since it isn't deeply tied to that segment.

Overall, the company's pricing policy is stable. It resorts to value-based selling and new pricing models are being implemented. The pricing improvements are not just rate increases but include productivity, automation, and change requests.

Despite the productivity improvements recorded by the company, the management stated that the net effect is offset by new project wins and expanded scope.

Conclusion

Going forward, a decline in third-party revenues is expected in FY26 as not all deferred Q4 FY25 revenues will come back in Q1 FY26.

Currently, the company's AI budgets are funded from overall tech budgets or cost savings from other programs. However, the trend towards centralized AI budgets is anticipated.

Infosys doesn't have client concentration issues. However, the minor declines in the top five client revenue were attributed to seasonality and third-party costs.

Going forward the company has chalked out ambitious plans. It is developing autonomous AI systems for adaptive enterprise processes, aiming to enhance operational resilience and decision-making.

The company is also expanding cloud services (30% of revenue, growing by 25% annually) with a "chip-to-cloud" strategy, bolstered by acquisitions like InSemi (semiconductor design) and in-tech (automotive engineering).

Infosys is also enhancing capabilities in edge computing and 5G infrastructure to support AI-enabled IoT solutions. All this is likely to push growth in the coming years.

Additionally, Infosys is also investing in quantum computing. It's using Quantum Living Labs (QLL) to deliver solutions that leverage quantum technology to enable clients to accelerate their innovation processes.

Additionally, valuations also remain reasonable as the stock is trading at a price to earnings (PE) multiple of 24.2. However, sustained earnings recovery and success in AI-driven transformation will determine future upside.

As always, individual investment decisions should be guided by broader portfolio goals and risk appetite.

Additionally, investors should evaluate the company's fundamentals, corporate governance, and valuations of the stock as key factors when conducting due diligence before making investment decisions.

To know more, check out Infosys' financial factsheet and latest quarterly results.

Happy Investing.

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