Profit companies

First Quarter Results: Infosys Misses Earnings Estimates But Raises Revenue Forecast



Infosys’ FY23 first-quarter results beat Street’s estimates for revenue growth, but the IT services major disappointed in margin performance due to rising talent costs. Its net profit for the first quarter of FY23 was below expectations at Rs 5,360 crore, up 3.2% year-on-year (YoY), but down 5.7% sequentially.

Despite an uncertain macroeconomic environment and talk of a recession in major economies, including the United States, Infosys raised its revenue forecast for FY23 to 14-16%, compared to the previous projection of 13-15%.

For the first quarter of FY23, Infosys reported revenue growth of 23.6% year-over-year to 34,470 crore. The figure rose 6.8% sequentially. Expressed in US dollars, Infy’s revenue increased 5.5% sequentially at constant currencies.

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Infosys managed to beat Bloomberg estimates on the front line (revenue estimates were Rs 34,008 crore). But the company missed net profit estimates of Rs 5,671 crore.

An even bigger disappointment was the margin, which came in at 20.1%, down from the company’s 21-23% range, due to higher cost of retention and headwinds between currencies.

“We had an excellent start to the year with sequential growth of 5.5% in constant currencies. We continue to gain market share through our Cobalt cloud capability and differentiated digital value proposition. The large deal pipeline is larger than what we had three to six months ago,” said Salil Parekh, CEO and Managing Director of Infosys.

Parekh acknowledged that there have been talks about recession and rising interest rates and that he sees pressure on certain segments like mortgage business in the financial services sector.

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Mitual Shah, Head of Research at Reliance Securities, said, “Infosys reported moderate performance in the first quarter of FY23. Margin was below our expectations. However, management raised its revenue growth forecast for FY23 from 13-15% to 14-16% and also maintained its Ebit margin forecast at 21-23%, ensuring a better performance during the remainder of FY23. Given double-digit revenue growth, increasing share of digital business (61% of revenue), likely improvement in Ebit margin levels and valuation comfort following the stock price correction stocks, we have a buy recommendation. »

Overall, Infosys’ June quarter results were mixed. There was still no clarity on attrition and TCV (total contract value) was sequentially disabled. TCV for large transactions was $1.7 billion, down 25% quarter-on-quarter and 35% year-on-year.

Infosys management, like the management of other leading IT companies, has shown confidence in deal dynamics and hasn’t seen much of an impact on customer sentiment regarding spend. computers.

Like other top players, Infosys also missed estimates on margin performance. It appears that talent retention continues to be a challenge, with margins being affected due to high labor costs. In the case of Infosys, the margin was affected due to higher compensation costs – which had a 160 basis point effect on the margin; moreover, there was lower utilization due to higher addition of fresh produce. According to Nilanjan Roy, CFO of Infosys, “We are seeing traction for growth in the market and we are convinced that we must put everything aside and focus on growth”.

Infosys was the biggest recruiter of new talent in the first quarter compared to peers like TCS and HCL Technologies. Infosys and Wipro are the only two big players to announce strong hiring.

Infosys added a total of 21,000 freshmen during the quarter, far more than TCS’s 14,136.

Infosys’ revenue growth, like that of its peers, has been widespread. It was led by America (4.5% QoQ and 17.8% YoY) and Europe (3% QoQ and 21.9% YoY). This was far better than TCS, which saw its UK and Continental Europe revenues decline by 3.3% QoQ and 0.7% QoQ, respectively.