Infosys Q3 preview: Revenue may rise 18% YoY; FY22 growth guidance eyed

According to Jefferies, Infosys's growth will be impacted by seasonal softness, although deal ramp-ups should help drive 3.7 per cent quarter-on-quarter (QoQ) CC revenue growth

Infosys Q3FY22 Preview: The October-December quarter of fiscal year 2021-22 (Q3FY22) may be a muted one for IT giant Infosys, believe analysts. The Bengaluru-headquartered company, which is set to report its Q3 results on Wednesday, January 12, may see around 4 per cent revenue growth (constant currency; CC) on a sequential basis. The revenue in dollars, meanwhile, may slip marginally owing to cross-currency headwinds.

"Infosys is expected to register 4 per cent QoQ growth in CC led by continued strong momentum from financial services, retail, communication, energy and manufacturing. Cross currency headwinds are expected to lead to 3.5 per cent QoQ growth in dollar terms. Rupee revenues are expected to increase 4.7 per cent QoQ to Rs 30,993.1 crore. Moreover, while EBIT margins are expected to expand 20 bps QoQ, net profit is expected to improve 5.8 per cent QoQ to Rs 5,737.1 crore," said Sameer Pardikar, research analyst at ICICI Securities.

On the bourses, the stock of the company outperformed the benchmark by surging nearly 13 per cent during the quarter under review. In comparison, the Nifty50 index slipped 1.5 per cent during the period. The Nifty IT index, meanwhile, advanced 10.5 per cent during Q3.

Infosys had reported consolidated revenue of Rs 25,927 crore in Q3FY21, and of Rs 29,602 crore in Q2FY22. Net profit, meanwhile, was Rs 5,197 crore and Rs 5,421 crore, respectively.

Ebitda/Ebitda margins came in at Rs 7,415 crore/28.6 per cent in Q3FY21 and Rs 7,831 crore/26.5 per cent in Q2FY22.

Here's how Infosys's Q3 report card may look like:

Jefferies

According to the brokerage, Infy's growth will be impacted by seasonal softness, although deal ramp-ups should help drive 3.7 per cent quarter-on-quarter (QoQ) CC revenue growth. Within this, it estimates the Daimler deal to contribute another 1.3 per cent QoQ CC.

Margins are likely to witness a modest decline of 20 basis points (bps) sequentially to 23.3 per cent, owing to higher supply costs. It expects Infosys to upgrade its FY22 growth guidance.

Emkay Global

According to the brokerage, Infosys may see 2.4 per cent QoQ USD revenue growth after factoring in 60bps cross-currency headwinds. In rupee terms, revenue may rise 3.7 per cent QoQ (18.4 per cent YoY) to Rs 30,704.6 crore.

Operationally, Ebitda is seen at Rs 8,140.4 crore, up 4 per cent sequentially and nearly 10 per cent yearly. PAT is pegged at Rs 5,712.8 crore, translating into a growth of 5.4 per cent QoQ and 10 per cent YoY.

Kotak Institutional Equities

The brokerage expects a 70 bps sequential decline in EBIT margin due to the impact of transition costs of Daimler deal, further wage revisions across different bands, decline in employee utilization rate, and higher subcontracting costs.

YoY decline in EBIT margin stands at 2.5 per cent due to a range of factors including catch-up on wage revisions, upfront transition costs in large deals, and impact of higher attrition levels.

"Growth is powered by discretionary programs that have a smaller size but also shorter execution time frame that does not get captured in Infosys’ large deal definition of total contract value (TCV) of at least $50 million. Expect muted large deal TCV ranging $2-2.5 billion," the brokerage noted.

That apart, high attrition is a worrying sign, it said. Voluntary attrition on a trailing basis was 20 per cent in September quarter, which can impact project staffing. We expect reported attrition to increase to 25 per cent.

Key monitorables

FY22 growth guidance; large deals intake; any changes in organizational structure post retirement of COO (Pravin Rao); and management commentary on CY22 IT budget, steps taken to manage supply-side challenges and available levers to defend margins, demand environment in BFSI, Manufacturing, Retail, and Communications, pricing environment, deals pipeline, and deal closure momentum.