India's second-biggest IT firm Infosys is expected to report a 14 percent growth in net profit for the first quarter of this fiscal, though sequentially both profit and revenue expansion are likely to be flat-to-marginally negative amid the slowdown in the West, analysts said.
The Bengaluru-headquartered company is likely to report a net profit of Rs 6,098 crore, representing a 13.76 percent jump YoY, as per the average of a poll of estimates of five brokerages.
Infosys had posted a net profit of Rs 5,360 crore in the first quarter of the preceding fiscal FY23.
However, when compared sequentially, company’s net profit is seen contracting by 0.49 percent as against Rs 6,128 crore in Q4 FY23.
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Revenue is estimated to grow 9.30 percent to Rs 37,675 crore from Rs 34,470 crore in Q1 FY23. The company’s consolidated revenue stood at Rs 37,441 crore in the preceding quarter Q4 FY23.
“We expect revenue to decline by 0.5 percent QoQ (constant currency) due to cancellations, project ramp-downs, and slower decision cycles. We expect a 20bps QoQ contraction in EBIT margin due to revenue decline. Large deal wins to benefit from the $454 million Danske Bank deal and also possibly from the announced MoU with BP,” foreign brokerage Jefferies said in a note.
The domestic IT sector is bearing the brunt of global tightening of IT budgets, project cancellations, delays in decision-making process and reduction in small-scale and time-sensitive deals.
Headwinds Ahead?
Kotak Institutional Equities said Infosys’ large order wins and deal pipeline will be closely monitored.
“Large deals will be in focus. Quantum of pipe, nature of large deals, pace of decision making and drivers of consolidation trend will be important focus points. We expect healthy TCV (total contract value) of wins powered by large deals,” it added.
Infosys had posted EBIT margins of 21 percent in Q4FY23, which is seen under pressure.
“We expect 30 bps qoq decline in EBIT margin. Headwinds in the quarter are in the form of higher variable compensation leading to 100 bps impact. Provision for post sales client support (as opposed to reversal) is another 30 bps headwind. Tailwind is largely in the form of normalization after 90 bps impact in 4QFY23 due to revenue reversals,” it added.
However, Kotak expects Infosys to tighten revenue guidance band to 4-6 percent from 4-7 percent band earlier.
Analysts say the macro headwinds are expected to weigh on the IT pack for the next few quarters.
In a note to clients, domestic brokerage Ashika said Infosys is likely to report muted revenue growth in the range of 0.5-1 percent in both rupee and dollar terms.
The key stumbling block for the entire sector currently is the recessionary headwinds in Europe and US – the bread-and-butter markets for domestic IT players.
“We expect macro-related uncertainty, likely slowdown in tech spends and supply-side pressure to impede growth in the near-term at least in 2 more quarters,” Ashika added.
In this context, key focus during the Q1 results announcement would be on demand commentary and large deal wins.
The Infosys stock had faced a barrage of rating downgrades after the Q4FY23 results. It is down 3 percent on YTD basis, though the 1-month return stands at 13 percent.
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