Infosys – Q4FY21 first cut  

Infosys reported a mixed set of Q4FY21 numbers. While revenues were below our estimate, margins were above our estimates. Dollar revenues increased 2.0% QoQ vs. our estimate of 4.5% in constant currency terms. Dollar revenues increased 2.8% QoQ vs. our estimate of 5.3% QoQ. However, the company reported healthy EBIT margin of 24.5% (vs. our estimate of 24.1%). In terms of geographies, revenue growth was led by Americas, Europe and India, which grew 2.8% QoQ, 4.5% QoQ and 18.6% QoQ, respectively. In terms of verticals the growth was led by BFSI, Retail, Manufacturing, Energy & Utilities and Hi Tech which grew 2.4% QoQ, 3.5% QoQ, 6.1% QoQ and 1.5% QoQ.

Digital revenues increased by 5.6% QoQ and 38.6% YoY and now accounts for 51.5% of overall revenues. In terms of large deal pipeline, it increased 27.3% YoY to US$2.1 billion. On a QoQ basis, it saw a dip due to one off large deal in the previous quarter. Further, the company has again outperformed TCS in terms of revenue growth in YoY terms in which TCS’ dollar revenues was up 5.9% YoY vs. Infosys which increased by 9.6% YoY in CC terms. In terms of guidance, the company expects FY22E revenues to grow in the range of 12%-14% and operating margin to be in the range of 22-24%.

Q4FY21 Earnings Summary

• Constant currency (cc) revenues increased 2.0% QoQ (vs. our estimate of 4.5% QoQ growth). US$ revenues increased 2.8% QoQ to $3,613 million (below our estimate of 5.3% QoQ increase to US$3,702)
• Rupee revenues grew 1.5% QoQ to Rs. 26,311 crore (vs. our estimate of 4.1% QoQ growth)
• Reported EBIT margins declined 94 bps QoQ to 24.5% mainly led by wage hikes and higher other operating expenses. However, the company’s margins were above estimate of 24.1%
• Reported PAT stood at Rs. 5,076 crore. PAT was lower than our estimate Rs. 5,271 crore mainly led by lower other income
• The company has announced a buyback of equity shares via open offer route via stock exchange. The company will buyback ~5.25 crore shares at a price of Rs. 1,750 amounting to Rs. 9,200 crore. The company has announced a dividend of Rs. 15 per share. The record date for dividend is 1 June 2021 and dividend will be paid by 25 June 2021

Infosys has given a healthy double-digit guidance and has also been able to defend its margins despite wage hikes. In addition, the company has consistently performed in revenue terms over the past few quarters and is also narrowing the gap between TCS & it’s margins. This prompts us to have a positive view on the stock.” ICICI Direct Research.

Infosys results
Infosys, delivered strong FY21 performance with 5.0% CC growth, and growth accelerating to 9.6% in Q4 – in the face of a turbulent economic environment. Large deal TCV for FY21 peaked to an all-time high of $14.1 billion with 66% being net new. Operating margin for the year expanded by 3.2% and Free Cash Flows increased by 44.4%. The Board has recommended capital return of ₹15,600 crore including final dividend of ₹6,400 crore and open market buyback of shares of ₹9,200 crore.

“I am very pleased with our performance this year and incredibly proud of our employees for the passion and commitment they displayed despite a very tough environment. We have crossed a milestone of ₹100,000 crore in revenue in FY21. Our intense focus on client relevance, growing our digital portfolio with differentiated capabilities like Infosys Cobalt, and empowering employees have helped us emerge as a preferred ‘partner-of-choice’ for our global clients. Our record large deal wins stand testimony to the effectiveness of this approach”, said Salil Parekh, CEO and MD. “A strong momentum exiting FY21, alongside a focused strategy to accelerate client digital journeys, gives us confidence for a stronger FY22”, he added.

Outlook for FY22:

• Revenue growth guidance of 12%-14% in constant currency
• Operating margin guidance of 22%-24%

In Q4, Infosys continued to expand its digital capabilities, especially with the Infosys CobaltTM cloud portfolio. The company announced a partnership with LivePerson for Conversational AI to help brands manage AI-powered conversations with consumers and employees. Powered by NVIDIA DGX A100 systems, the company also built its own applied AI cloud to provide employees simple and fast access to AI infrastructure, expanding their ability to drive AI-driven transformation for enterprises.

During the quarter, Infosys was also recognized as one of the World’s Most Ethical Companies in 2021 by Ethisphere Institute, US and was ranked #30 on WSJ’s 2021 list of 100 most sustainably managed companies in the world.

1. Key highlights for the quarter and year ended March 31, 2021

“Despite the disruptions, we continue to execute seamlessly with broad-based momentum across verticals. This has led to healthy volume growth and record utilization in a seasonally soft quarter”, said Pravin Rao, COO. While our employees continue to work from home through this health crisis, we remain focused on their wellness, including facilitating vaccination rollout for eligible employees. Attrition has picked up, largely reflecting a strong demand environment, but we remain confident of our employee engagement initiatives, vast talent pool and training capabilities to ensure seamless execution”, he added.

“FY21 was a landmark year with superior shareholder returns backed by robust operating metrics and strong growth across revenue, margins and free cash flows”, said Nilanjan Roy, CFO. “Executing on our capital allocation policy, the company proposes to increase the total dividend per share by 54% over previous year and Buyback of Equity shares of up to ₹9,200 crore”, he added.

2. Capital Allocation

The Board in its meeting held today approved the following:

• Buyback of Equity Shares, from the open market route through the Indian stock exchanges, amounting to ₹9,200 crore (Maximum Buyback Size, excluding buyback tax) at a price not exceeding ₹1,750 per share (Maximum Buyback Price), subject to shareholders’ approval in the ensuing AGM.
• For FY 21, the Board has recommended a final dividend of ₹15 per share. Together with the interim dividend of ₹12 per share already paid, the total dividend per share for FY 21 will amount to ₹27 which is a 54% increase over FY 20. With this, the company has announced total dividend of ₹11,500 crore for FY 21.

3. Client Wins & Testimonials

The trust clients repose in Infosys drives us to invest further in building stronger digital capabilities and to raise the bar in delivery excellence.

• Sam Marnick, Executive Vice President and Chief Operating Officer, Spirit AeroSystems, said, “We look forward to partnering with Infosys on our efforts to further diversify our business and strategically position Spirit AeroSystems for the future. We appreciate the long-standing relationship we have with Infosys and the support they have brought to a number of strategic projects for Spirit.”
• Alan Feeley, CIO of Siemens Gamesa, said, “Implementing a single S/4HANA system across all business units and regions is a core component of our company-wide strategy towards process efficiency, standardization and industrialization. These first go live steps across 7 countries, supporting all business types, have proven the value of the greenfield approach chosen, achieving a stable productive environment around Hybrid Azure cloud by Infosys. This single and global setup provides an almost Zero “change the standard” approach giving confidence towards sustainable cost management & upgrade proofing for the future. Infosys has demonstrated admirable ‘staying power’ and has delivered a solid product whilst fulfilling our expectations of being a partner in full.”
• “We are pleased to continue to partner with Infosys BPM in standardizing and digitizing supply chain processes across our regions. Infosys BPM’s strong leadership commitment and clear understanding of our operations will enable significant productivity improvements, service levels improvements, and cost savings,” said Ryan Plourde, Group Executive – Supply Chain, Newmont Corporation
• Paolo Lomonaco, CFO, Chalhoub Group, said, “We are delighted to extend our strategic collaboration with Infosys to accelerate our digital transformation journey and enable a seamless transition to a new business model in the post-Covid normal. Infosys has been our partner of choice in providing a range of technology services for almost a year and has managed to efficiently transition during the unprecedented situation. We look forward to leveraging Infosys’ adroitness and a clear understanding of best in class retail technologies to scale digital commerce and drive operational efficiency.”
• “We collaborated with Infosys to organize our first Mars AI virtual festival in December 2020, featuring top leaders from Mars, incorporated and globally renowned AI experts. With more than 8,000 associates and business stakeholders attending, spread across geographies, and spanning various business segments, we needed a platform that could not only support the scale of the event but also deliver a seamless, immersive, and engaging experience. And the Infosys Meridian platform delivered. Using the Infosys Meridian workplace ecosystem, we were able to drive interactions and collaboration amongst the global participants by orchestrating immersive interventions that included 26 kiosks, a speaker hangout area, a Twitter board, multiple games, a leaderboard, a digital caricature corner, and a live DJ. Over the five days of the event, we were able to execute an exciting agenda to create and sustain meaningful engagements with our global stakeholders.” – Miao Song, Global CIO, Mars Petcare
• “Our partnership with Infosys has been invaluable, allowing us to innovate, strengthen our core operations, handle growing volumes and as customers focus on becoming increasingly digital, improve our services. The Infosys team supports our business transformation goals by helping us drive efficiencies and improve customer experience. Infosys demonstrated great support and
• flexibility throughout the pandemic, helping us keep our operations running and delivering with an unwavering customer-focus.” – Petteri Naulapää, CIO, Posti Group Oyj

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