The American Depository Receipts (ADRs) of Infosys, listed on the New York Stock Exchange (NYSE) plunged 6 percent overnight, following the company's Q3 numbers on January 16. While the information technology major's October-December earnings came in ahead of market estimates, its revised revenue growth guidance, which hints towards a weaker Q4 may have triggered the fall.
ADRs of Infosys were ended nearly 6 percent lower at $21.57 on the NYSE, suggesting a lower open for the company's domestic shares when trading resumes in the Indian stock market on January 17.
Infosys had released its Q4 numbers after Indian market hours on January 16 and its shares ended over 1 percent lower at Rs 1,928.45 on the NSE.
Infosys witnessed strong deal wins in Q3 which prompted the management to revise its revenue growth guidance to 4.5-5 percent in constant currency terms for FY25. This also marked the eight instance of an upgrade in the growth guidance in the past nine quarters. The previous guidance had estimated revenue growth in the range 3.75-4.5 percent for FY25.
However, this revised guidance as pointed by analysts in the post-earnings call, suggested a weaker performance by the company in Q4. While answering analyst queries in the post earnings call, the management acknowledged the expectations of a weaker Q4.
The company enjoyed the benefits of higher third-party revenue contribution in Q3, which aided its overall topline growth. With the reversal of those benefits in Q4, combined with slight impact of furloughs and lower working days, the January-March quarter is likely to face some headwinds which are baked in the FY25 revenue growth guidance, the management said.
In addition to that, the first phase of the company's wage hike also came into effect from January 1 which will have an adverse impact on margins in the ongoing quarter. Aside from this, the other facets of Infosys' Q3 earnings and commentary remained positive.
The company reported a 4.6 percent sequential rise in its consolidated net profit to Rs 6,806 crore in Q3, up from Rs 6,506 crore in the previous quarter. Revenue also grew 2 percent in rupee terms to Rs 41,764 crore as against Rs 40,986 in the last quarter.
A Moneycontrol poll of nine brokerages had pegged the IT major's net profit at Rs 6,734 crore and revenue at Rs 41,206 crore for Q3, with the company surpassing estimates on both parameters.
Moreover, the company's EBIT margin also expanded 20 basis points on a sequential basis to 21.3 percent. Likewise, the EBIT guidance was also retained at 20-22 percent for FY25.
Infosys also reported a Q3 large deal Total Contract Value (TCV) of $2.5 billion, with 63 percent being net new, marginally surpassing the previous quarter's $2.4 billion despite seasonal weakness. "Improved deal pipeline give us greater confidence as we look ahead," Parekh added.
The management is also seeing improvement in discretionary spend in financial services vertical in Europe and retail and consumer segments in the US, which according to Shaji Nair, Research Analyst, Capital Market Strategy, Mirae Asset Sharekhan, augurs well for the company.
"We believe the Infosys remains well positioned to capture cost optimisation and transformation opportunities given its strong domain knowledge and market leading capabilities in cloud with Cobalt and generative AI with Topaz," Nair said.
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