Infosys Q4 Results Preview: Weak discretionary spending to weigh on sales, FY25 guidance seen conservative
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Infosys Q4 Results Preview: Weak discretionary spending to weigh on sales, FY25 guidance seen conservative

Software major Infosys is likely to have gone through another tough quarter in terms of earnings growth, as lower sales and weak discretionary spending weighed on the overall performance in the three months ended March.For the quarter ended March, the company’s consolidated revenue is seen dropping 0.4% sequentially, while growing 3.2% year-on-year (YoY) to Rs 38,650 crore, according to the average of estimates given by 10 brokerage firms.

Consolidated net profit is likely to be flat sequentially, and decline 0.5% YoY to Rs 6,103 crore. Operating margin is seen improving marginally sequentially from 20.5%, due to cross-currency tailwinds.

Infosys will release its fourth quarter and annual earnings on April 18.

After fairly conservative guidance for FY24, most analysts expect the revenue growth guidance for FY25 to be slightly better but remain in single digits.

“We expect FY25 revenue growth guidance to be in the range of 2-5%. We also expect Infosys to raise the EBIT margin guidance band to 20.5-22.5% from 20-22% (in FY24),” said Kotak Institutional Equities.

Meanwhile, Nirmal Bang Institutional Equities expects the Bengaluru-headquartered IT major to dole out constant currency revenue growth guidance of 4-7% for FY25, but the margin to be similar to the FY24 level of 20-22%.

For FY24, Infosys had slashed its growth guidance consecutively for three quarters due to the uncertain global environment.

Post the December quarter earnings, the country’s second-largest software services provider had guided for revenue growth of 1.5-2.0% in constant currency terms in FY24, which was sharply lower than the 4-7% growth it had projected at the start of the financial year.

Here’s a summary of the broad expectations by various brokerage firms from the software major.

Kotak Institutional Equities

We forecast revenue to decline 1.5% on a sequential basis. The March quarter is seasonally weak for Infosys. A sequential decline will be on account of —(1) lower revenues from the sale of third-party software and (2) weak discretionary spending. Adjusted EBIT margin stood at 21.1% in the December quarter (adjustment for malware attack impact).

We forecast a 40 bps decline due to wage revision impact and lack of leverage from growth. We expect a large deal TCV of $3 billion. In focus will be the translation of revenues of large deals signed in earlier quarters into revenues.

Nirmal Bang Equities

We expect Infosys to hold out revenue growth guidance for FY25 in the 4-7% CC range. We expect margin guidance to be similar to FY24 (20-22% EBIT margin). We think that risk on revenue is to the downside post the recent commentary of global IT Services players like Accenture, Capgemini, and Cognizant.

We expect Infosys to report a revenue growth of ~1.2% QoQ in CC terms. It will face a cross-currency tailwind of 25 bps. We expect an EBIT margin to expand by 20 bps QoQ to 20.7% as the impact of salary hikes which were announced on 1st November 2023 will be lower in 4QFY24 and the one-off impact due to McCamish Systems in 3QFY24 will be reversed in 4QFY24.

Large deal TCV stood at $3.2 billion in 3QFY24 compared to $7.7 billion in 2QFY24. We believe that the 4QFY24 TCV number will be in the $2-3 billion range.

Things to watch out for: (1) Guidance for FY25 (2) The timing and extent of salary hikes in FY25 (3) Extent of boost from the margin improvement program in FY25.

JM Financial

We are building in -0.9% QoQ c/c revenue growth with 20 bps cross currency tailwind translating into -0.7% QoQ dollar revenue growth. We expect a limited contribution from mega deals in Q4. We have not built meaningful contributions from the InSemi acquisition.

ICICI Securities

We build in 1.2% USD/CC QoQ revenue contraction. We expect some traction in the communication (ramp up from the liberty deal), and the BFSI (from deals announced in Q4). We expect 2% YoY USD growth, landing in the upper end of the guided range of 1.5-2% for FY25. We build in USD 4.6 million in revenue from inSemi acquisition for Q4E. We expect EBIT margin to contract marginally by 20 bps QoQ due to continued wage hikes and slow growth.

BNP Paribas

We expect USD revenue to decline 0.4% QoQ (-0.5% QoQ in CC) due to: 1) the continued impact of a slowdown related to a cut in discretionary tech spending; 2) some extension of furloughs; and 3) project ramp downs; partially offset by large deals ramp-up.

We model a 25 bps QoQ decline in EBIT margin to 20.3% on account of muted revenue growth, one month of wage-hike impact and visa costs.

The company’s recent disclosure implies a net one-time tax refund of Rs 33 billion (not reflected in our PAT estimates).

Guidance: We expect Infosys to guide 3-5% CC revenue growth in FY25 and a margin band of 20-22%

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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