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Informist, Wednesday, Oct. 16, 2024

 

By Anjana Therese Antony

 

MUMBAI – Deal ramp-ups, higher revenue from third-party software, and improved performance of key segments are expected to help Infosys Ltd. post the highest sequential earnings growth for Jul-Sept compared to other large-cap industry peers, analysts said. The second-largest IT company in terms of market capitalisation is also widely anticipated to raise its revenue growth guidance in constant currency terms for the financial year 2024-25 (Apr-Mar), just as US-based Accenture did. Infosys is scheduled to release its results Thursday, the same day when Wipro Ltd. will also post its earnings.

 

The Bengaluru-based company's consolidated net profit for Jul-Sept is seen rising 7% sequentially to INR 68.13 billion, according to the average of estimates of 17 broking firms. This will be a major shift from the 20% sequential decline in net profit the company had reported in the previous quarter. This will also be much better than the 1% sequential fall posted by the industry leader, Tata Consultancy Services Ltd. and a 0.5?cline reported by HCL Technologies Ltd. Among the 17 brokerages, ICICI Securities has the highest net profit estimate of INR 75.22 billion and Systematix Shares and Stocks (India) has the lowest of INR 64.31 billion.

 

The company is expected to report a 3.4% on-quarter growth in consolidated revenue to INR 408.38 billion, as per the estimates, similar to the sequential performance a quarter ago. This would be comparatively better than TCS' 2.6% sequential increase and HCL Technologies' 3% growth. Axis Securities has the highest revenue estimate of INR 412.30 billion, while ICICI Securities has the lowest of INR 404.32 billion.

 

In constant currency terms, the company's revenue is seen at $4.87 billion, as per the average of estimates from 11 broking firms. Indsec Securities expects 2.6-3.2% growth in constant currency on account of "large deal ramp ups, intech integration, BFSI and communication (segments) recovery, and robust US-led geography growth," the broking firm said in its earnings preview report.

 

GUIDANCE

Infosys is widely expected to raise its revenue growth guidance for FY25 to 4-5% from 3-4?rlier. "The possibility of a guidance upgrade from the current 3-4% will reflect an improved outlook for H2 (Oct-Mar) and a stronger-than-expected Q2 (Jul-Sept)," HDFC Securities said in its earnings preview report.

 

In the previous quarter, the company had raised its guidance to 3-4% from 1-3%, surprising market participants who had expected the IT player to retain its view for FY25. This upward revision, despite weak earnings performance, had pushed the stock price to an over two-year high. At 1358 IST, the stock was at INR 1,937.80 on the National Stock Exchange, down 1%.

 

For more than a year, Indian IT companies have felt the heat of weak discretionary spending, unfavourable demand environment, high interest rates in the US, and a blurry business outlook. However, the fog started to clear recently on the reduction in the intensity of cuts in discretionary spends, some recovery in demand, and reduction of interest rates in the US, which made various broking firms turn optimistic about the sector.

 

MARGIN

The market is divided on the sequential change in Infosys' earnings before interest and tax margin. While some broking firms believe operating efficiencies and the absence of visa costs will expand the operating margin on quarter, a few expect a contraction of margin due to decline in utilisation, large deal investments, and reversal of one-offs.

 

Those who expect an increase in the margin figure believe the company's margin expansion programme, Project Maximus, announced last year, to absorb the headwinds from the fall in utilisation. EBIT margin is seen in the range of 20.40-21.80%, as per estimates from 11 brokerage houses.

 

In the June quarter, Infosys' operating margin expanded to 21.1% from 20.1% a quarter ago and was within the company's guidance of 20-22% in constant currency terms. Several broking firms believe that the company will retain this margin guidance for FY25.

 

The company's post-earnings press conference is scheduled at 1630 IST Thursday and the conference call with analysts at 1800 IST. Market participants will closely look for management comments on the trends in discretionary spending by clients across verticals, outlook on demand, senior management attrition, and wage hike announcements, among others. 

 

The company promoted 25 employees, most of whom have been with it for at least two decades, to executive vice-president and senior vice-president roles this year, Mint reported Monday. These promotions come after Infosys lost its top-level talent to Tech Mahindra Ltd. and Cognizant Technology Solutions Corp. over the past two years, the report said. During the June quarter, the company's 12-month trailing attrition was 12.7% compared to 12.6% a quarter ago.

 

Following are the Jul-Sept earnings estimates for Infosys based on reports compiled by Informist from 17 brokerage houses:

Broking Firm	Net Sales (in INR million)	Net Profit (in INR million)	Revenue (mln $)	?IT margin
Antique Stock Broking Ltd	409,649	67,577	--	--
Axis Securities Ltd	412,300	66,450	--	21.5
Dolat Capital Market Pvt Ltd	406,884	69,865	4,855	21.8
Emkay Global Financial Services Ltd	406,884	66,902	--	--
HDFC Securities Ltd	406,650	68,780	4,856	21.7
ICICI Securities Ltd	404,322	75,215	4,827	21.6
IDBI Capital Market Services Ltd	408,700	66,209	4,880	20.8
Indsec Securities and Finance Ltd	407,200	68,300	4,900	21.5
Kotak Institutional Equities	410,353	66,629	--	--
KR Choksey Research	407,855	66,423	--	21.3
Motilal Oswal Financial Services Ltd	409,000	66,000	4,882	--
Nirmal Bang Equities Pvt Ltd	409,784	68,816	4,871	21.1
Nuvama Wealth Management Ltd	410,238	71,537	4,884
PhillipCapital (India) Pvt Ltd	408,671	68,444	4,877	21.4
Prabhudas Lilladher Pvt Ltd	409,100	68,200	4,884	21.5
Sharekhan Ltd	409,870	68,560	--	--
Systematix Shares and Stocks (India) Ltd	405,057	64,305	4,851	20.4
Average	408,383.35	68,130.12	4,869.73	21.33

 

End

 

US$1 = INR 84.03

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Ashish Shirke

 

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