Kotak Institutional Equities has reiterated its “BUY” recommendation on Infosys, setting a 12-month target price of Rs1,850, compared to a current market price of Rs1,427. The report highlights Infosys’ calculated expansion in cloud, digital transformation, and cybersecurity through a series of compact, but significant, acquisitions. Despite struggling amidst macroeconomic headwinds, Infosys continues to deliver profitable growth and trades at a favorable forward valuation. The latest move—taking majority control of Versent Group—strengthens Infosys’ foothold in Australia and opens high-value public sector and financial institution opportunities. Investors are advised to accumulate, backed by compelling valuation multiples and sector dynamics.

Infosys Unveils Third Acquisition in FY2026: Versent Group

Infosys has announced the purchase of a 75% stake in Versent Group, a subsidiary of Telstra, at a valuation of AUD234 million (approximately US$152 million). Telstra will retain the remaining 25% stake, ensuring collaborative continuity. Versent, known for its specialization in cloud-native applications and digital transformation across the public sector, financial institutions, and energy utilities, clocked revenues of AUD211 million in FY2025. The deal positions Infosys for deeper integration into high-quality Australian client verticals—including government and education—while boosting local headcount by 650 employees.

Strategic Rationale: Expanding Presence and Client Portfolio

- Versent’s portfolio provides Infosys with privileged access to public sector, education, and banking clients in Australia, markets that are typically hard to penetrate for foreign IT service providers. - The acquisition is pivotal, not just as a geographic play, but as a tactical move to strengthen Telstra relationships—Telstra remains a critical client while retaining a strategic stake. - By leveraging Versent’s digital capabilities, Infosys becomes equipped to architect and operate robust cloud and platform ecosystems for new-age businesses in energy, utilities, and financial services.

Deal Metrics and Valuation

- The transaction’s EV/revenue multiple stands at 1.5X, reflecting prudent capital deployment in a rapidly consolidating space. - For context, Telstra's acquisition of Versent (excluding associated entities) commanded an EV/revenue of 2.1X in October 2023, indicating a more favorable entry point for Infosys. - Profitability metrics for Versent Group remain undisclosed, but the seamless access to high-growth verticals justifies the premium.

Infosys: Acquisition Track Record in FY2026 and Beyond

This fiscal year marks the third notable acquisition for Infosys: - MRE Consulting (US-based, energy consulting): US$36 million, EV/revenue of 0.6X. - Missing Link (Australian cybersecurity firm): AUD98 million, EV/revenue of 2.3X. Both demonstrate Infosys’ commitment to focused expansion rather than indiscriminate scale.

Company Valuation: Attractive Multiples and Growth Prospects

Infosys currently trades at 19.5X FY2027E EPS, which Kotak regards as attractive given the stock’s history of regaining valuation leadership. The fair value is pegged at Rs1,850, based on a 24X June 2027E EPS multiple.

Key Shareholder Insights and Price Performance

- Infosys has delivered profitable growth despite a challenging discretionary spending environment. The company’s share price has underperformed the Nifty-50 and MSCI India indices over 1M, 3M, and 12M periods, showing a correction of (11)%, (9)%, and (21)% in absolute terms. - The shareholding pattern remains robust, with strong institutional support from promoters, FPIs, and mutual funds.

Historical Perspective: Forward P/E Bands

- Infosys’ historical 1-year forward P/E band ranges between 20.1X and a low of 5X, indicating current valuations are neither overly stretched nor unduly cheap. - The 10-year average P/E provides context for relative value and sector positioning.

Condensed Financials: 2020–2028E

Infosys has consistently demonstrated improvement across key financial metrics: - Revenues are projected to increase from Rs1,629.9 billion in FY2025 to Rs2,064.7 billion by FY2028E. - EBITDA margins and return ratios remain resilient, underlining operational efficiency and strong capital discipline. - Free cash flow generation is robust, expected to reach Rs301.5 billion by FY2028E.

Sector View and Investor Guidance: Neutral with Upside Potential

Kotak’s sector stance remains “Neutral,” but the report unequivocally suggests Infosys is best positioned among Tier 1 peers to capitalize when discretionary spending resumes. Investors seeking opportunities in India’s IT services sector should accumulate Infosys at current levels, targeting a fair value of Rs1,850 within the next 12 months.

Disclosure, Risks, and Analyst Certification

Kotak Institutional Equities’ recommendations are accompanied by requisite disclosures as per SEBI norms. Investors are reminded that market volatility may induce short-term deviations. All analysts affirm the integrity and independence of their views in the report.

Conclusion: Accumulate Infosys for Medium-Term Upside

Amidst challenging global technology demand and unpredictable macroeconomic swings, Infosys’ string of strategic, value-accretive acquisitions positions it as a resilient bet for investors. Attractive valuation multiples, expanding capability set, and robust free cash flows underline the company’s enduring investment appeal. Investors should look to accumulate Infosys now, with Rs1,850 as the target for medium-term appreciation.