Infosys Q3 growth may be muted on higher furloughs; PAT may rise 9-15% YoY

Infosys Q3 preview: The operating margin could improve by 10-40 basis points (bps) to up to 21.9 per cent sequentially aided by a weakened rupee, lower attrition and higher optimisation

Bengaluru-based IT giant Infosys is expected to report muted revenue growth in the October-December quarter of 2022-2023 (Q3FY23) due to higher furloughs and fewer large deals. 

Though the firm's operating margin could improve in the range of 10-40 basis points (bps) to up to 21.9 per cent sequentially aided by a weakened rupee, lower attrition and higher optimisation.   

The company will report its Q3 earnings on Thursday along with peer HCL Technologies. 

As per an average of 5 estimates compiled by Business Standard, Infosys’ Q3 revenue could rise 18-19 per cent year-on-year (YoY) to Rs 37,838 crore, while net profit may grow by 9-15 per cent to Rs 6,470 crore.   

Most brokerages expect Infosys to retain its FY23 revenue growth guidance of 15-16 per cent and EBIT margin guidance of 21-23 per cent. 

Key monitorables: Street will watch out for growth and margin guidance, commentary on client budgets, deal momentum, macro impact on revenues, attrition trend, whether vendor consolidation and cost take-out deals have increased, the health of impacted verticals such as hi-tech, retail, parts of financial services and Europe, pricing leverage if any and margin outlook.

Here’s a snippet of what top brokerages expect:

IDBI Capital: Expects revenue growth of 1.1 per cent in constant currency (CC) terms to be partially offset by 10 bps cross currency impact. Sees growth to be broad-based with earnings before interest and tax (EBIT) margin to expand 33 bps QoQ mainly led by better utilization and reduced sub-contracting cost.  

Kotak Instiutional Equities: The brokerage assumes a normal level of pass-through revenues and forecasts 1.1 per cent quarterly revenue growth. High furloughs and lack of large deal kicker (unlike the previous two years) will result in muted growth. The benefits of rupee depreciation and marginally higher utilization rates will also be offset by furloughs and muted revenues. 

Dolat Capital: Expects sequential growth of 1.3 per cent in CC terms led by strong performance across verticals. Expects operating margin to improve 40 bps QoQ with profit seen rising 7.8 per cent sequentially. 

ICICI Securities: Expects the company to maintain the status quo on the annual growth guidance even in Q4 as the asking rate is around 0.5-1.1 per cent CC growth for the next few quarters, which does not seem stretched. In Q3, there would have been a continued impact of slowdown in pockets like BFSI (mortgage), retail, hi-tech, telecom and Europe as a region. The mix of deals is expected to be skewed towards cost-take-out programs. 
 

PhillipCapital: Expects CC revenue growth of over 1.5 per cent, which will be impacted by furloughs and the absence of large deals. Margins are likely to rise by 10 bps over the last quarter.