Infosys delivered a mixed performance in its third quarter results, with revenue growth overshadowed by declining profitability metrics. The IT services giant reported consolidated net profit of ₹6,654.00 crores, marking a significant 9.6% decline from the previous quarter's ₹7,364.00 crores and falling short of analyst estimates of ₹7,445.00 crores.

Financial Performance Overview

The company's financial metrics for Q3 present a contrasting picture of growth and margin pressure:

Revenue Growth Amid Margin Compression

Revenue performance provided a bright spot in the quarterly results, with the company achieving ₹45,479.00 crores compared to ₹44,490.00 crores in the previous quarter. This 2.2% sequential growth marginally exceeded analyst expectations of ₹45,255.00 crores, demonstrating resilient demand for the company's services.

However, the revenue growth came at the cost of profitability. EBIT margins compressed to 20.84% from 21.02% in the previous quarter, falling short of the estimated 21.30%. This margin pressure translated into lower absolute profit despite higher revenues.

Operational Efficiency Challenges

The decline in EBIT margin by 18 basis points quarter-on-quarter indicates operational headwinds facing the company. While EBIT in absolute terms grew modestly to ₹9,479.00 crores from ₹9,353.00 crores, the growth rate of 1.3% lagged behind the revenue growth of 2.2%, highlighting increased cost pressures.

The gap between revenue growth and EBIT growth suggests challenges in maintaining operational efficiency, possibly due to increased employee costs, higher subcontracting expenses, or investments in capability building that are yet to translate into margin expansion.

Market Expectations vs Reality

The results fell short of market expectations across key profitability metrics. Net profit missed estimates by 10.6%, while EBIT margin disappointed by 46 basis points. Only revenue managed to exceed expectations, albeit marginally by 0.5%.

These results reflect the broader challenges facing the Indian IT services sector, including pricing pressures, increased competition, and the need for continuous investment in emerging technologies while maintaining profitability in traditional service lines.

Infosys Ltd is positioned for strong market performance after upgrading its revenue guidance and receiving positive analyst coverage, with American Depositary Receipts surging 10% overnight following the announcement.

Guidance Upgrade Drives Optimism

The IT services major lifted its constant-currency revenue growth guidance for FY26 to 3-3.5%, representing an upward revision from the earlier 2-3% band. This guidance upgrade signals improved demand conditions despite the challenging environment facing large-cap Indian IT services companies, which continue to grapple with cautious client spending and slower decision-making cycles.

Mixed Q3 Financial Performance

The guidance upgrade came alongside mixed quarterly results for the December quarter. While revenue growth remained robust, profitability faced pressure during the period.

Despite the decline in consolidated net profit, revenue growth in both rupee and dollar terms exceeded consensus estimates, demonstrating the company's resilience in execution.

Brokerage Recommendations and Target Prices

Multiple brokerages have responded positively to Infosys' performance and guidance revision, with target prices ranging from ₹1,750.00 to ₹2,076.00.

Centrum maintains the most bullish outlook, citing sustained traction in verticals such as BFSI and rising adoption of AI-led services. The brokerage views the guidance upgrade as reflecting management confidence in the demand environment, supported by strong deal pipeline and large deal wins.

Jefferies believes the upgraded guidance largely reflects Q3 outperformance rather than Q4 demand improvement. The brokerage has raised revenue estimates by up to 1% and expects Infosys to deliver a 7.50% recurring EPS CAGR over FY26-28.

Nomura continues positioning Infosys as its top large-cap pick in Indian IT services, noting steady demand support despite margins coming in marginally below expectations.

Growth Drivers and Market Position

Several factors are supporting the positive outlook for Infosys:

• Sector Performance: Q3 growth was led by Life Sciences, BFSI, and Manufacturing verticals
• Geographic Strength: Europe stood out as a key growth region
• Deal Momentum: Strong large-deal momentum including multiple mega deals
• AI Focus: Management's emphasis on six AI-led value pools as long-term growth drivers
• Market Share Gains: Ability to capture market share despite near-term segment volatility

Market Context

Infosys shares closed at ₹1,609.00 on the NSE, down 0.60% from the previous close. The stock has declined sharply over the past year, leading to normalized valuations closer to long-term averages. Indian stock markets remained closed for trading due to Maharashtra municipal elections, setting up potential strong buying interest when trading resumes.

The improved guidance stands out against the challenging backdrop facing the IT services sector, where companies continue dealing with regulatory and wage-related cost pressures alongside cautious client spending patterns.