Infosys Q3 Results Today: Profit to decline by 7% YoY, Nov wage hikes to erode margins; eyes on FY24 guidance, $1.5 bn AI deal termination

Infosys is likely to post weak numbers with revenue growth, according to estimates, expected to be 1.8 per cent lower in constant currency terms, with ~20 bps cross-currency headwinds.

Written by Tanya Krishna

January 11, 2024 11:50 IST

Infosys, Infosys Q4 results, quarter earnings, Q4FY24, profit, revenue, IT services company, dividend

Infosys posted its fiscal fourth quarter profit at Rs 7,975 crore.

Infosys Q3 Preview: IT major Infosys is all set to report its earnings for the third quarter of FY24 today, on January 11. The tech giant is likely to post weak numbers with revenue growth, according to estimates, expected to be 1.8 per cent lower in constant currency terms, with ~20 bps cross-currency headwinds. Per the analysts, Infosys’ December quarter performance will be marred by lower pass-through revenues, higher-than-usual furloughs, and weak discretionary spending. The company is also expected to post a decline in operating margin due to salary hikes that the company rolled out in November last year. “Infosys is expected to report a revenue decline of 1.8 per cent in CC terms due to discretionary spend cuts and furloughs, with ~20 bps cross-currency headwinds. EBIT margins are likely to decline by ~95 bps QoQ due to wage hike and weaker revenues,” said analysts at Sharekhan by BNP Paribas.

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Brokerage firms said that Infosys will post Q3 profit in the range of Rs 5,960- Rs 6,142 crore, reporting a YoY fall of around 7 per cent. Revenue growth is expected to be muted at around Rs 38,660 crore.

Ruchi Burde Mukhija, VP Equity Research – Technology & Internet, Elara Capital, said, “Anticipate a 1 per cent CC revenue contraction in Q3FY24. Headwinds are further project ramp-downs/cancellations, high, senior-level attrition, seasonal furloughs and budget tightening in key geographies. The recent termination of a $1.5 billion AI deal with an unnamed global company adds to growth headwinds in the near term. Demand may be broad-based and tepid, except for manufacturing and energy verticals. Expect margins to decline by 100bps as Q3 may see a wage hike impact and furloughs, though partly offset by lower subcontracting costs.”

For Infosys, more than the quarter numbers, shareholders would look out for commentary on whether the IT firm will narrow its FY24 revenue guidance further and the management’s take on the recent $1.5 billion AI deal termination. Infosys had lowered its revenue guidance to 1-2.50 per cent post September quarter results from 1.35 per cent post June quarter results and 4-7 per cent post March quarter earnings. “We expect Infosys to revise its FY24E revenue guidance to 1-2 per cent (1-2.5 per cent earlier),” said HDFC Securities.

“We expect Infosys’ Q3FY24 revenue to marginally decline QoQ owing to a challenging quarter primarily influenced by sustained weak demand, the absence of certain one-time sales and the impact of furloughs. The absence of mega deals is expected to moderate deal momentum in Q3. EBIT margins are also anticipated to decrease slightly QoQ, attributed to the impact of two months of wage hikes in the quarter and the absence of one-time sales in Q2, partially offset by lower pass-through sales and currency benefits,” said Dhruv Mudaraddi, Research Analyst, Stoxbox.

Meanwhile, Amit Goel, Co-Founder & Chief Global Strategist, Pace 360, said, “We believe that the company’s revenue is poised to rise by 0.70 per cent on QoQ basis, reaching Rs 60,100 crore, showcasing steady growth from the previous Rs 59,692 crore. Our optimistic outlook extends to the company’s operational performance, with the expectation of 2 per cent increase in operating profit on a QoQ basis, projecting it to reach Rs 14,787 crore compared to the prior quarter’s Rs 14,483 crore. In terms of the bottom-line, we foresee a promising 2.14 per cent QoQ increase in profit after tax, with an estimated figure of Rs 11,624 crore, as opposed to the previous Rs 11,380 crore.”

Notably, December is a seasonally weak quarter for IT firms because of high furloughs and Infosys’ EBIT margin seen taking a hit sequentially and on yearly basis due to the impact of two months of wage hikes, according to analysts.

“We expect muted revenue growth for tier-I IT service companies and mixed trends for tier-II companies in a seasonally soft quarter due to weak macros, furloughs, higher deal scrutiny and decision-making delays. We expect QoQ constant currency (cc) revenue growth of -2.5 per cent- 4.4 per cent for tier-I Indian IT service companies and 0.9 per cent – 5 per cent CC revenue growth for tier-II IT companies. Crosscurrency impact is expected to be marginal for most IT companies. We expect moderation in deal win TCV after a high base in Q2FY24. However, the ramp up in earlier won large cost take out deals from Q2FY24 is expected to aid recovery for H2FY24 and set the tone for FY25. We anticipate growth momentum to return in FY25 aided by lower base coupled with easing sector headwinds,” said Sharekhan By BNP Paribas.