Infosys may beat peers on Q1 profit growth; risk to revenue guidance eyed

Infosys may post a net profit of Rs 6,245 crore for Q1, up 2 per cent sequentially, much better than the 3-11 per cent QoQ slide in net profits of TCS, HCL Tech and Wipro

Largecap IT major Infosys’ June quarter earnings are expected to be soft in line with the industry trends owing to lower discretionary spending by clients, project ramp-downs and weakness in the BFSI, retail, hi-tech and telecom factions, analysts said. 

As per an average of eight brokerage estimates, the company can post a net profit of Rs 6,245 crore for Q1, up 16.5 per cent from a year ago. Sequentially, this could be 2 per cent higher, much better than the 3-11 per cent slide in net profits of TCS, HCL Tech and Wipro. 

The firm’s revenue is expected to be around Rs 37,741 crore, up just 0.8 per cent QoQ and 9.5 per cent from last year. SEE ESTIMATES TABLE

The company’s FY24 revenue guidance will be closely watched. Two brokerage firms Jefferies and Motilal Oswal expect the constant currency (cc) revenue growth guidance to be slightly revised lower by up to 100 bps from the upper end. 

Key monitorables: The Street will look out for the company’s commentary on demand, large deal wins and pipeline. Outlook for the communications and banking verticals, margin levers, attrition, pricing, impact on discretionary spending, and conversion of pipeline and project run-offs will be tracked. 

Also Read: HUL Q1 revenue may rise up to 9% YoY; soft RM costs to aid margin: Analysts

Here’s what brokerages expect: 

Jefferies: Jefferies expects Q1 cc revenue to decline 0.5 per cent QoQ due to cancellations, project ramp-downs, and slower decision cycles. It estimates a 20 bps QoQ contraction in Ebit margin due to the revenue decline. Large deal wins will benefit from the $454 million Danske Bank deal and also possibly from the announced MoU with BP. Expect Infosys to revise FY24 cc revenue growth guidance to 4-6 per cent from 4-7 per cent. Ebit margin guidance of 20-22 per cent is likely to be maintained. 

HSBC: HSBC, on the other hand, does not expect any change in the revenue guidance. It estimates Q1 cc revenue to marginally rise by 0.6 per cent QoQ on a low base despite continued weakness in US communications and banking. It sees Q1 margins to be flat QoQ at 21 per cent as benefits from lower sub-contracting and cost optimisation measures will be offset by subdued volumes and normalisation of other costs such as travel. 

PhillipCapital: The brokerage expects cc revenue growth of 0.8 per cent QoQ. The ebit margin is expected to remain flat. It has not assumed any wage hikes for the quarter. Expect Infosys to retain its revenue and margin guidance. 

Motilal Oswal Financial Services: Project cancellations have led to likely muted revenues. It sees the risk of guidance moderation for FY24 but expects deal wins to have remained resilient. The operating margin is estimated to decline by 100 bps YoY. The brokerage has assumed wage hikes.

IDBI Capital: Revenue growth is expected to be flat in cc terms with a cross-currency tailwind of 24 bps. It expects the Ebit margin to come in at 21 per cent; flat on a QoQ basis.

Also Read: Bank of Maharashtra Q1FY24 result: Net profit up 95% YoY to Rs 882 cr