Infosys Q1 preview: PAT likely to grow 27-30% YoY; may up FY22 guidance

Analysts expect strong deal momentum, seasonality factor and traction in cloud to drive Infosys' performance in the June 2021 quarter of financial year 2021-22 (Q1FY22). They peg bottomline growth at 27-30 per cent and topline (in rupee terms) at 16-17 per cent, yearly. Unlike for other information technology (IT) firms, analysts see margin expansion for Infosys during the quarter under review due to absence of wage hikes and healthy improvement in revenues. Furthermore, large deal TCV is likely to be robust.

Amid anticipation of a strong Q1 performance, shares of the company had scaled an all-time high of Rs 1,590.85 on June 30, 2021. During the quarter, the scrip rallied 16 per cent but has come off all-time highs on profit-booking.

Infosys' outlook will be key to watch, with many brokerages penciling in a rise in the company's FY22 revenue guidance. "We expect Infosys to raise FY22 revenue growth guidance to 13-15 per cent versus 12-14 per cent earlier post a strong Q1 and easy ask rate of ~2 per cent CQGR (excluding Daimler – assuming transition in H2FY22F) to achieve the top end of the current guidance range. We expect Infosys to retain EBIT margins guidance of 22-24 per cent for FY22F, however, outlook on the trajectory is key given increase in travel costs especially in US/EU, impact from the transition of Daimler deal, supply-side pressures and wage hike impact in Q2FY22F," Nomura's research analyst Rishit Parikh said.

Vertical wise commentary, second wage hike impact, ramp up of Daimler deal, traction in digital technologies, and pricing environment will be other key areas of interest for investors, according to ICICI Direct.

Here are the brokerages' expectations on key metrics:

PROFIT

Global brokerage HSBC pegs Q1 net profit growth at 30 per cent year-on-year (YoY) to Rs 5,502.8 crore as against Rs 4,233 crore posted in the same quarter a year-ago. Sequentially, the figure could rise 8.4 per cent, the brokerage said from Rs 5,076 crore in the March 2021 quarter. Brokerage ICICI Direct has similar expectations as it eyes net profit growth at 29.6 per cent YoY and 8.1 per cent quarter-on-quarter (QoQ) to Rs 5,488 crore. Nomura, meanwhile, eyes Q1 net profit of Rs 5,380.2 crore, up 27.1 per cent YoY and 6 per cent QoQ.

REVENUE

On the revenue (in rupee terms) front, Nomura expects a growth of 17.1 per cent on a yearly basis to Rs 27,712.7 crore from Rs  23,665 crore. In QoQ terms, the figure could expand 5.3 per cent from Rs 26,311 crore posted in the March quarter of FY21. "We expect 4 per cent QoQ constant currency (CC) and 4.2 per cent QoQ dollar revenue growth in Q1 led by strong seasonality, ramp-up of large deals won in prior quarters and recovery in communication and manufacturing verticals," Parikh said in an earnings preview note. The brokerage pegs dollar revenue for Q1FY22 at $3,765 million, up 20.6 per cent YoY, as against $3,121 million in Q1FY21.

Home-grown brokerage ICICI Direct pegs Q1 revenue at 27,723 crore, up 17.1 per cent YoY while global brokerage HSBC eyes the same at Rs 27,725 crore, up 17.4 per cent.

On the lower-end of the spectrum, Jefferies puts Q1 revenue (in rupee terms) at Rs 27,547.1 crore, up 16.4 per cent YoY and 4.7 per cent QoQ. In dollar terms, it eyes revenue growth of 19.7 per cent to $3,737 million while the figure could rise 3.4 per cent, sequentially. It further expects 3.3 per cent QoQ CC growth driven by strong deal momentum.

MARGIN

HSBC and Jefferies expect EBIT (earnings before interest and tax) margins to expand 230 bps YoY and 50 bps QoQ to 25 per cent during the quarter under review, aided by INR depreciation, operational gains and absence of wage hikes. The IT services major's EBIT margins stood at 22.7 per cent in Q1FY21 and 24.5 per cent in Q4FY21.

Nomura, on the other hand, expects a QoQ EBIT margin dip of 50 bps to 24 per cent due to inch-up in hiring efforts (up 4.1 per cent QoQ) impacting utilisation and supply-side pressures. Although, yearly, it could expand by 130 bps.