Infosys – Q1FY22 first cut, ICICI Securities

Infosys reported robust revenue growth & was above our estimates. However, the company reported a dip in margins and was below our estimates. The company’s dollar revenues increased 4.8% QoQ vs our estimate of 4.0% in constant currency terms. The company’s dollar revenues increased by 4.7% QoQ vs our estimate of 4.0% QoQ. However, the company’s reported EBIT margin stood at 23.7% (vs our estimate of 24.5%). Revenue growth was across geographies & verticals. In terms of geographies, revenue growth was led by Americas, Europe and RoW which grew 4.8% QoQ, 3.8% QoQ and 6.6% QoQ, respectively. In terms of verticals the growth was led by BFSI, Retail, Manufacturing, Communication, Life Science and Hi Tech which grew 4.7% QoQ, 6.1% QoQ, 5.8% QoQ, 6.4% QoQ, 4.7% QoQ and 7.3% QoQ.

The company’s digital revenues increased by 9.7% QoQ and 46.9% YoY and now accounts for 53.9% of overall revenues. In terms of large deal pipeline, it increased 23.8% QoQ to US$2.6 billion. Further, the company has again outperformed TCS in terms of revenue growth in QoQ terms in which TCS dollar revenues was up 2.4% YoY vs Infosys which increased by 4.8% QoQ in CC terms. In terms of guidance the company expects FY22E has revised its revenue guidance upwards from 12%-14% to 14-16% and maintained operating margin to be in the range of 22-24

Q1FY22 earnings summary

• Constant currency (cc) revenues increased by 4.8% QoQ (vs. our estimate of 4.0% QoQ growth). US$ revenues increased 4.7% QoQ to $3,782 million (above our estimate of 4.0% QoQ increase to US$3,758)
• Rupee revenues grew 6.0% QoQ to | 27,896 crore (vs. our estimate of 5.4% QoQ growth)
• Reported EBIT margins declined by 81 bps QoQ to 23.7% (below our estimate of 24.5%) mainly led by higher retention, hiring (80 bps impact) and higher sub-contracting expenses partially offset by 10 bps currency impact and 40 bps higher utilisation
• Reported PAT stood at | 5,195 crore. PAT was lower than our estimate | 5,488 crore mainly led by lower operating margins

Infosys has seen healthy revenue growth and a strong deal pipeline. This has given the company the confidence to up the revenue guidance. In addition, the company has consistently outperformed TCS in revenue terms. This prompts us to have a positive view on the stock. We would be revisiting our estimates and target price shortly.
CT Bureau