Infosys, India’s second-largest information technology (IT) company, is expected to post muted revenue and profit growth for the quarter ended March on weak financial services demand and seasonal factors, analysts say.
The Bangaluru-based company, which will announce its earnings today, is expected to see revenue in the fourth quarter of FY 2023 rise 1.4 percent and net profit increase 0.6 percent quarter-on-quarter (QoQ).
Infosys’s consolidated revenue is expected to come in at Rs 38,859 crore, marking 20.4 percent year-on-year (YoY) growth, according to an analysts’ poll. Consolidated net profit is expected to increase 16.5 percent YoY to Rs 6,623 crore.
In constant currency (CC) terms, analysts predict revenue growth ranging from 0.3 to 0.6 percent QoQ.
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Bank turmoil
Infosys, like other IT services companies that depend on banking, financial services and insurance (BFSI) companies for a large share of revenue, has felt the impact of a potential banking crisis that led to the collapse of Santa Clara, California-based Silicon Valley Bank and the rescue of Credit Suisse by UBS in March.
Infosys, specifically, has a 26 percent exposure to the banking and financial services sector, excluding insurance, Kotak Institutional Equities says.
“Expect muted CC revenue growth of 0.6 percent QoQ due to seasonality and weakness in Financial Services; USD growth implies 110BP of currency tailwind. There is no material change in large deal momentum compared to last quarter,” securities firm Motilal Oswal wrote.
BP is short for basis point. One basis point is equal to one-hundredth of a percentage point.
Securities firms expect Infosys to guide for 6-8 percent YoY revenue growth in FY24.
Margins
“We expect Infosys to end the year at the upper end of its guidance of 16- 16.5 percent C/C growth and margins at the lower end of 21-22,” Asian Market Securities wrote.
According to the analyst poll, Earnings Before Interest and Tax (EBIT) are expected to come in at Rs 8,395 crore, with the margin projected to expand by 78 bps to 21.6 percent.
Analysts differ on the extent of margin expansion. IDBI Capital expects the EBIT margin to expand by 83 bps QoQ to 22.3 percent, helped by reduced attrition.
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“Despite having favourable levers towards margins such as decrease in sub-con costs (as percentage of revenue) and decrease in attrition, pricing and pyramid optimisation among others and the headwinds such as flattish growth, increase in travel levels (not to pre-COVID levels), investment in sales side is expected to be more pronounced this time, thereby leading to flattish to muted growth in margin on QoQ basis,” according to analysts at B&K Securities.
Analysts will be closely watching management commentary related to IT budget allocations by clients, total contract value in the deal pipeline and recent deal wins, discretionary spending cuts and the margin outlook.
Additionally, what Infosys has to say regarding attrition trends along with the outlook for telecom, retail, BFSI and hi-tech verticals and the recent re-allocation of Mohit Joshi's portfolios and responsibilities will be keenly watched. Joshi resigned as Infosys president in March.
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