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Infosys Q4 results preview: Analysts expect Rs 5,950 crore profit

Infosys, India’s second-largest IT services company, is likely to post a 15-20 percent rise in consolidated profit after tax and a 24 percent growth in consolidated revenue in the quarter ended March.

The Bengaluru-based company may report a profit of Rs 5,950 crore on revenue of Rs 32,700 crore when it releases its results on April 13, experts said.

Growth during the quarter may have been powered by smaller deals with shorter implementation timeframes. Experts said clients prefer smaller digital transformation projects that can be implemented in a short span rather than large, longer-tenure deals that follow lengthy due diligence and legal processes.

These deals, however, won’t get captured in Infosys’ declaration of large deals, which the company defines as those with a total contract value of at least $50 million.

Infosys had posted a profit of Rs 5,076 crore and revenue of Rs 26,311 crore in the quarter ended March 2021. Profit in the three months ended December 2021 was Rs 5,809 crore and revenue was Rs 31,867 crore.

Revenue
“We forecast sequential revenue growth rate of 2 percent in constant currency driven by continued strength in discretionary spending by clients,” Kotak Institutional Equities said in a report. Growth in constant currency on an annualised basis is estimated at 21.1 percent.

Revenue in dollar terms is expected to grow 19.6 percent on-year to $4.32 billion and by 1.7 percent on a sequential basis.

Revenue in rupee terms may grow 23.7 percent on-year to Rs 32,544 crore, while sequential growth is estimated at 2.1 percent.

According to a report from Emkay Research, revenue is expected to jump 23.9 percent on-year to Rs 32,610 crore and 2.3 percent sequentially.

“We build in a 2.3% QoQ USD revenue growth factoring in ~40 bps cross-currency headwinds,” Emkay said in a report.

Motilal Oswal Financial Services expects “some moderation in growth as a high base in Q3FY22 will play out in Q4FY22.” It said Infosys may report a 2.8 percent sequential and 21 percent on-year growth in dollar revenue to $4.37 billion.

According to Motilal Oswal, revenue in rupee terms is estimated at Rs 32,900 crore, a growth of 24.9 percent on-year and 3.1 percent on-quarter.

Margins
Kotak Institutional Equities said earnings before interest and tax margin is expected to decline 170 bps on-year to 22.8 percent and by 70 bps on-quarter.

The sequential decline is on account of “decline in utilisation rates which are currently at unsustainable levels; higher visa costs – 50 bps impact,” Kotak said. However, “Infosys does have some margin tailwinds as well from lower pass-through revenue component.”

Motilal Oswal also expects margins to get impacted by higher visa costs and supply-side challenges. It estimates an EBIT margin of 23 percent with a 150 bps on-year decline.

Bottomline
Based on estimates of analysts polled by Moneycontrol, Infosys is expected to report a profit of Rs 5,950 crore in the quarter ended March 2022.

Motilal Oswal forecasts a profit of Rs 6,080 crore with on-year growth of 19.6 percent and sequential growth of 4.5 percent. Emkay Research pegs profit at Rs 6,010 crore. Kotak is the most conservative and forecasts a profit of Rs 5,750 crore, which is an on-year growth of 13.4 percent. Sequentially, however, it sees profit declining marginally by 90 bps.

Investor focus
Experts expect Infosys to provide annual revenue and margin guidance for FY23.

“We expect modest growth guidance of 11-13 percent that implies 1.5-2.5 percent revenue CQGR (compounded quarterly growth rate) for four quarters of FY23,” Kotak said. EBIT margin guidance is likely to be maintained in the band of 22-24 percent.

Investors will watch for assumptions underlying the FY23 revenue guidance, especially in light of macroeconomic uncertainties induced by the Russia-Ukraine conflict; supply-side pressures and the influence on margins; levers to defend margins in light of a creeping increase in travel expenses and supply-side pressures; deal intake and pipeline, and indications of IT spending for CY22. Moneycontrol

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