Infosys exceeds expectations in Q3. How will the stock react to quarterly prints

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Infosys exceeded expectations in terms of profitability and revenue for the quarter ending December 31, 2022 (Q3FY23). During the quarter, Infosys witnessed a large deal intake in Q3, while recording a sharp moderation in attrition rate. Further, the company has raised its revenue growth guidance in constant currency terms. Stock brokerage Emkay Global Financial Services expects Infosys share price to react ‘Neutral to Positive’ after Q3 prints.

The IT giant posted a consolidated net profit of 6,586 in Q3FY23 rising by 13.4% YoY and 9.4% QoQ. Meanwhile, revenue from operations came in at 38,318 crore in Q3FY23 increasing by 20.2% YoY and 4.9% QoQ.

Further, the company’s attrition rate of IT services dropped to 24.3% in Q3FY23 from 27.1% in Q2FY23. While the company made a net addition of 1,627 employees quarter-on-quarter — taking the total headcount to 3,46,845 in December 2022 quarter.

Infosys said, strong Q3 performance with year-on-year growth at 13.7% and sequential growth at 2.4% in constant currency. Year-on-year growth was in double digits for most business segments and geographical regions in constant currency terms. Large deal TCV for the quarter was the strongest in the last 8 quarters at $3.3 billion. Digital comprised 62.9% of overall revenues and grew at 21.7% in constant currency. The operating margin for the quarter remained resilient at 21.5%.

In its first cut note, Emkay said, revenue growth exceeded expectations, while FY23 revenue growth guidance was raised to 16-16.5% implying a muted Q4.

Infosys has retained its operating margin guidance at 21%-22% for FY23.

Emkay’s note added, “Infosys reported revenues of $4.66 billion up 2.3%/9.6% QoQ/YoY (CC 2.4%/13.7% QoQ/YoY), above our expectations of $4.59 billion (TCS Q3FY23 revenues was $7.07 billion 2.2% CC QoQ). EBITM was flat sequentially at 21.5%, 20 bps below our expectations. (TCS IT services EBITM grew ~50 bps QoQ at 24.5%). Adjusted profits at Rs65.9 billion (9.4% QoQ, 13.4% YoY), above our expectations of Rs63.7bn due to higher other income.”

On FY23 revised guidance, Emkay’s note added, “Infosys raised its revenue growth guidance to 16-16.5% CC (earlier 15-16% CC), implying -1.1% to 0.5% QoQ growth in Q4, and retained its EBITM guidance to 21-22%.”

Among other growth verticals in constant currency terms, the company posted 5.5% YoY growth in financial services, 36.8% YoY growth in manufacturing, 12.7% YoY growth in retail, 25.9% YoY in ECS, 12.7% YoY rise in communications, 10.4% upside in hi-tech, and 5% YoY surge in life sciences.

On geographical performance, Infosys recorded 10.5% YoY growth in the US, while the growth was higher at 25.3% and 11.9% year-on-year in Europe and the Rest of the World (ROW). However, in India, the growth dropped 5.4% YoY in constant currency.

Emkay expects Infosys stock to react ‘Neutral to positive’ after Q3 results. Among key positives are — revenue beat, large deal intake of USD3.3bn, FY23 revenue growth guidance increased to 16-16.5% CC, and LTM attrition moderated by 280bps QoQ.

 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.


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