Infosys Ltd, India’s second-largest IT exporter by revenue, will announce its fourth-quarter earnings on Wednesday, a day after its larger peer Tata Consultancy Services (TCS) Ltd released its result. Infosys’ revenue growth guidance for FY23 will be a key monitorable even as analysts expect some moderation in growth in Q4.
As per consensus estimates by Bloomberg, Infosys is expected to post a net profit of ₹5,961 crore on revenues of ₹32,709 crore for the March quarter.
Mint highlights five things to watch for in Infosys’ Q4 results that will be declared on 13 April after market hours.
Revenue growth and guidance
Investors will closely monitor the revenue growth guidance for FY23 as that would set the tone for the rest of the year. Brokerage firm Sharekhan believes Infosys would provide a revenue growth guidance of 11-13% for FY23 versus 12-14% at the beginning of FY22. ICICI Securities expects Infosys to register a 3.0% sequential growth in constant currency led by momentum in financial services, retail, communication, energy and manufacturing. Cross-currency headwinds would lead to 2.7% sequential growth in dollar terms.
Margins of most IT firms are expected to come under pressure due to supply-side challenges. Sharekhan expects Infosys to retain its margin guidance for FY23 at 22-24%. For the quarter ended March, ICICI Securities expects EBIT margins of Infosys to contract 30 basis points quarter-on-quarter due to an increase in employee costs.
Investors will watch out for commentary on the mix of deal sizes, deal total contract value (TCV), deal closure momentum, and deal pipeline. Ramp up of Daimler deal and traction in digital technologies will be among the key factors to watch, according to ICICI Securities. In the December quarter, Infosys signed large deals worth a TCV of $2.53 billion.
Demand from key verticals
Investors will watch out for the management’s commentary on demand, especially from key verticals like financial services, hi-tech, and retail. For Infosys, financial services is the largest vertical which contributed 31.5% to the total revenues during the December quarter. Retail contributed 14.5% while hi-tech contributed 8.1% to the total revenues during the December quarter.
While the peak might be behind, the war for talent and shortage of skills is expected to keep attrition high. The attrition rate at Infosys rose to 25.5% in the December quarter from 20.1% in the preceding three months. “Attrition across companies would continue to be high and, hence, cost to backfill attrition (at higher costs) and costs related to retention, bonus, rationalisation of compensations are expected to put pressure on margins,” according to ICICI Securities.