India’s second-largest information technology (IT) firm Infosys is expected to report a decent sequential growth in revenue and margin expansion in the first quarter of the current financial year when it reports its numbers on July 18.
Ramp up of earlier large deals and the absence of adverse impact due to rescoping in one of the BFSI deals will aid the performance, analysts said.
The Salil Parekh-led company’s profit may be weak sequentially on lower other income and in the absence of income-tax refunds, they said. In the March quarter, the Bengaluru-based firm made a windfall gain of over Rs 6,000 crore following an income tax refund.
Potential tailwinds include the absence of visa costs and the ramp-up of large deals. Persistent macroeconomic issues and cross-currency are the likely challenges.
As Infosys gears up to release its first-quarter earnings, here are five themes that will be closely watched:
Revenue growth, margins
Major brokerage firms are optimistic about Infosys' revenue and margin performance. They predict growth in revenue on the back of large deals and the absence of one-time costs that affected the previous quarter.
Brokerage Axis Securities and Kotak Institutional Equities, expect Infosys to report a 2.4 percent growth in revenue, the highest among large-cap peers.
Emkay Global and Equirus expect a similar growth rate on the back of the ramp-up of deals won in previous quarters and improved operational efficiencies.
Operating margins are expected to improve led by moderated onsite expenses, better cost optimisation, and the absence of one-off costs such as those related to the cyber incident at Infosys McCamish, which affected Q4 numbers.
One basis point is one-hundredth of a percentage point.
FY25 guidance
Analysts expect Infosys to maintain its FY25 revenue growth guidance at 1-3 percent in constant currency (CC) terms and the EBIT margin guidance of 20-22 percent. This stability is seen as crucial amid macroeconomic uncertainties in the key markets of the US and Europe.
EBIT is short for earnings before interest and taxes.
The company revised its annual revenue growth guidance five times in the previous five quarters. The latest was in the March quarter when it slashed guidance to 1-3 percent as weakness continued in discretionary and digital projects.
In January, it lowered the full-year guidance to 1.5-2 percent for FY25.
Axis Securities and BNP Paribas both expect the company to stick to its growth guidance.
Kotak Institutional Equities said mega deals translating into actual revenue would improve growth in FY25 for Infosys and the IT sector as a whole.
Big deal-s
Revenue growth will largely be driven by the ramp-up of large deal wins. Emkay Global has forecast a strong deal total contract value (TCV) despite macroeconomic headwinds, which would be skewed toward cost-takeout initiatives.
The overall demand environment, particularly in core markets like the US and Europe, will remain in focus. The street will closely track the management commentary to know how Infosys is navigating the current economic uncertainties.
BNP Paribas and Kotak said they would also look for clarity on client decision-making processes and the demand outlook in key verticals such as BFSI and Hi-tech.
Emkay Global said it expects cost efficiency and consolidation deals to remain priorities for clients in these uncertain times.
Gen AI deals
Infosys has said its investments in generative AI (Gen AI) and digital technologies should be viewed as catalysts for growth. The street would look for updates on the traction of the Gen AI offerings among clients.
Gen AI is seen as an important driver for IT firms as discretionary spending remains elusive.
On July 11, Infosys’ bigger rival Tata Consultancy Services (TCS) said it has $1.5 billion worth of AI and Gen AI projects in the pipeline as of Q1, closing in with rival Accenture’s $2 billion in cumulative Gen AI revenue.
A day later, peer HCLTech said it has over 200 Proof of Concepts (PoC) for Gen AI, however, refusing to call out any bookings or revenue numbers on Gen AI deals.
Infosys is working on 225 Gen AI programmes for clients, chairman Nandan Nilekani said in the annual report. Analysts will be waiting for the management update on how these have worked out.
Employee metrics
The street will also wait for Infosys employee count after the IT services giant reported a decline of 25,994 for FY24, a first in 23 years.
Improving utilisation rates and a change in the demand environment were the reasons cited by the firm for the drop in the headcount.
Over the quarters, attrition has been declining consistently, indicating a cooling talent market.
Infosys has also been giving campus hiring a miss, as it looks to monitor utilisation rates and follow a flexi-hiring model.
In April, chief financial officer Jayesh Sanghrajka said the company is hiring over half of its fresher workforce off-campus and is yet to decide its campus hiring target for FY25.
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