Infosys Q3 results | IT major on course to clock 8-year-high sales growth in FY22, other takeaways

Infosys

Infosys on January 12 reported yet another blockbuster quarter of earnings aided by robust deal pipeline, demand for digital services and benefits driven by the mega digital deal with Daimler in December 2020.

The country’s second-largest information technology firm by market capitalisation reported a 7.2 percent quarter-on-quarter rise in its consolidated net profit for the quarter ended December to Rs 5,809 crore. It also reported a 7.7 percent on-quarter rise in consolidated revenues to Rs 31,867 crore.

The strong earnings saw the company bump up its 2021-22 consolidated revenue growth guidance to 19.5-20 percent in constant currency from 16.5-17.5 percent, setting it on course to clock the highest annual sales growth since 2013-14. In 2013-14, the company’s sales grew 24 percent.

Brokerage firm Morgan Stanley India termed the company’s Q3 earnings as an “all-round beat”, with the FY22 revenue growth guidance far exceeding its expectation of 18 percent.

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Here are takeaways from the Bengaluru-based IT giant’s third quarter earnings:

1 Demand pipeline robust beyond FY22

Infosys suggested that deals pipeline and overall demand environment for IT sector is so strong that it provides the company confidence beyond March. Managing Director and Chief Executive Officer Salil Parikh said the appetite for large digital transformation among clients was still robust and the pipeline for even mega deals was good.

With the company clocking over $2 billion in deals in the December quarter, Parekh’s optimism for further deals is likely to enable the company to provide a rosy sales growth outlook for FY23 when it next announces its earnings.

Also read: Infosys to hire 55,000 graduates this fiscal

2 Has the attrition rate peaked?

Infosys reported a high attrition rate of over 25 percent at the end of the December quarter as it continues to struggle to retain talent in one of the hottest IT sector jobs market in years.

Chief Financial Officer Nilanjan Roy acknowledged that the attrition rate was high but suggested that it could mellow down in the coming quarters as the company assimilates fresh graduates from campuses around the country.

Also read: Wipro Q3 net profit comes in at Rs 2,970 crore, revenue at Rs 20,432.3 crore

3 Costs rise but margins are steady

Infosys’ consolidated operating margins for the quarter ended December shrank 10 basis points on-quarter to 23.5 percent despite the company facing several cost headwinds. The decline in margins was much less than what analysts were expecting.

Employee costs in the quarter jumped 4 percent sequentially, while sub-contractor costs soared 15 percent on-quarter. At the same time, the company reported a 33.5 percent on-quarter rise in software packaging costs.

4 Stock to gain on January 13?

The all-around earnings beat by the company in the December quarter has set up the stock for a strong showing on January 13, analysts said.

With the company required to grow its topline merely 0-2 percent sequentially in the March quarter to meet its full-year guidance, it is likely that it will easily surpass its own guidance, which should spur investors to factor in a robust June and even September quarter.