Infy pours cold water on investors’ hopes

Infosys Q4 revenue rose 1.2% in constant currency terms, lower than the consensus estimate of 3% (Photo: Bloomberg) — Infosys Q4 revenue rose 1.2% in constant currency terms, lower than the consensus estimate of 3% **(Photo: Bloomberg)**

2 min read . Updated: 14 Apr 2022, 12:07 AM IST

Infosys maintains growth was broad-based across segments and regions and was supported by large deal wins

MUMBAI/BENGALURU : The March quarter is seasonally weak for information technology (IT) services companies. This kept expectations in check from Infosys Ltd’s Q4FY22 numbers. However, the company’s performance fell short with both revenue growth and operating margins missing street’s expectations.

Sequentially, revenue rose 1.2% in constant currency terms, lower than the consensus estimate of 3%. For FY22, constant currency revenue rose 19.7% year-on-year (y-o-y), within the guided range of 19.5-20%, but only just higher than the lower end of the band. Q4FY22 earnings before interest and tax (Ebit) margin was 21.5%, down about 200 basis points (bps) sequentially and lower than the consensus estimate of 23%. One basis point is 0.01%.

Infosys maintains growth was broad-based across segments and regions and was supported by continued momentum in large deal wins. The demand environment continues to be robust and the deal pipeline points to solid demand traction with its client base, said the management in a post earnings conference call. The total contract value of large deal wins in Q4FY22 was $2.3 billion.

For FY23, Infosys has guided for constant currency revenue growth of 13%-15%. “While Infosys’ FY23 revenue growth guidance of 13-15% was encouraging and reflects strong demand environment, lower margin guidance of 21-23% for FY23 may drive earnings revisions," said analysts from Jefferies India in post results first cut note.

“While Infosys was expected to lag Tata Consultancy Services Ltd (TCS), the magnitude of underperformance is higher than anticipated. We expect the stock to react negatively, followed by an earnings downgrade. So, valuations for Infosys may moderate and the gap between the two could widen," said an analyst with a foreign brokerage requesting anonymity. Sequentially, TCS’ Q4FY22 constant currency revenue grew 3.2% and margin stood flat at 25%.

In the last one year, the Infosys stock has rallied by 25%, ahead of TCS’ 18% returns. Some mega deal wins, which improved revenue outlook, helped sentiments for Infosys’ stock. On Wednesday, Bloomberg data showed the stock trades at 27.71 times FY23 estimated earnings, a tad higher versus 27.46 times for TCS.