 "Infosys Q2FY24 preview: Subdued earnings on cards despite mega deal wins")
Bengaluru-based Infosys’ second-quarter (Q2FY24) performance is expected to be subdued as strong deal wins may not accrue meaningfully amid persistent pressure on global discretionary demand, analysts said.
This follows the company sharply revising its FY24 constant currency (cc) revenue guidance down to 1-3.5 per cent in the preceding June quarter.
Analysts do not expect any revision to the guidance when the company announces its results on Thursday, October 12.
As per an average of 6 brokerage estimates, Infosys' net profit may rise just 3.8 per cent on-year to Rs 6,252 crore, while revenue may see a 5 per cent uptick to Rs 38,437 crore. SEE TABLE
On a quarterly basis, the net profit and revenue growth are pegged at 5 per cent and 1.3 per cent, respectively.
The company’s EBIT margin is estimated to expand by 20-30 basis points sequentially to 21.1 per cent on the back of cost efficiency and delay of wage hikes to be taken in Q1.
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Nomura, on the other hand, has assumed wage hikes and sees a 70 bps contraction in the EBIT margin to 20.1 per cent.
Key monitorables: Investors will watch out for outlook on recovery in communications and banking verticals, ramp-up timelines for the recent large deals and the pipeline ahead, margin impact from mega deals, reasons for senior management attrition after multiple senior leadership exits and the effective date for wage revision.
Here’s what brokerages say:
HSBC Global: Expects Q2 cc revenue to grow 0.5 per cent QoQ. The impact of discretionary spending cuts is expected to spill over to Q2 from Q1, but see things incrementally improving.
Expect Q2 margins to improve by 30 bps QoQ driven by the absence of visa costs, deferment of wage hikes and benefits from the firms’ cost optimisation
Motilal Oswal Financial: Expect muted cc revenue growth of 0.8 per cent QoQ due to continued demand slowdown with no meaningful contribution coming from the recently signed mega deals. However, deal TCVs should still look attractive.
Operating margin will largely remain stable due to a weak topline growth with no wage hike this quarter (Q2). Expect the company to maintain its guidance on the back of heathy deal wins, which should provide strong footing in the second half.
Operating margin will largely remain stable due to a weak topline growth with no wage hike this quarter (Q2). Expect the company to maintain its guidance on the back of heathy deal wins, which should provide strong footing in the second half.
JM Financial: Built in a 1 per cent QoQ cc revenue growth with 20 bps cross currency headwinds translating into a 0.8 per cent QoQ dollar revenue growth. Expect EBIT margins to improve by 24 bps QoQ aided by rupee depreciation and operational efficiencies. Have not baked in any wage hikes in Q2.
IIFL Securities: See a 1.3 per cent cc QoQ revenue growth as volumes remain subdued and initial ramp up of recently won large deals is offset by weak discretionary spend.
Expect margins to expand 20 bps QoQ as wage hikes have been delayed, potentially to Q3.
Kotak Institutional Equities: Expect muted sequential cc revenue growth of 0.6 per cent. Yearly growth rate would slow down to a mere 0.5 per cent as continued rationalization of discretionary programs would impact growth.
Expect 22 bps QoQ and 97 bps YoY decline in EBIT margin, not assuming any wage revision in our estimates. Decline in margin is largely due to increase in travel and other costs.
Expect large deal TCV announcements of $5.5-6 billion. This does not include the recently announced MoU of $1.5 bn in our estimates.
Expect 22 bps QoQ and 97 bps YoY decline in EBIT margin, not assuming any wage revision in our estimates. Decline in margin is largely due to increase in travel and other costs.
Expect large deal TCV announcements of $5.5-6 billion. This does not include the recently announced MoU of $1.5 bn in our estimates.