Infosys Q1 results preview: High costs may impact EBIT margin, PAT likely to record single-digit growth

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    IT-giant Infosys is set to announce its financial performance for the quarter ending June 30, 2022 (Q1FY23). Unlike other quarters, this time Infosys has scheduled to present quarterly results on Sunday. It is expected that Infosys is likely to record single-digit growth in PAT on a year-on-year basis, while the bottom line may sequentially dive. EBIT margins are seen to be impacted due to high costs. Although, some support from the depreciating rupee is also expected in the margin and revenue. Ahead of Q1, Infosys shares were under pressure.

    On BSE, Infosys shares closed at 1506.30 apiece down by 26.55 or 1.73% on Friday. Its market cap is around 6,33,793.91 crore.

    The company will announce results for the first quarter of FY23 on Sunday, July 24, 2022, around 5:45 p.m. Indian Standard Time (IST).

    In Q4FY22, Infosys posted a consolidated net profit of 5,686 core up by 12% yoy but down 2.1% qoq. Consolidated revenue climbed 22.7% yoy and 1.3% qoq to 32,276 crore in the quarter. Meanwhile, Q4 sequential growth was 1.2% in constant currency with an operating margin of 21.5%. TCV of large deal wins were $2.3 billion in Q4.

    For FY22, the company’s PAT jumped by 14.3% yoy to 22,110 crore, and revenue soared 21.1% yoy to 121,641 crore. Infosys delivered $16.3 billion in revenues with the highest annual growth in the last decade of 19.7% in constant currency with a robust operating margin of 23.0%. Growth was broad-based, supported by continued momentum in large deal wins with TCV of $9.5 billion. EPS grew by 15.2% in rupee terms. FCF crossed $3 billion for the year.

    For FY23, Infosys has set a revenue growth target of 13%-15% in constant currency. While the operating margin is expected to be at a growth rate of 21%-23%.

    What to expect in Infosys Q1FY23?

    Sameer Pardikar, Research Analyst at ICICI Direct said, “Infosys is expected to register 4.5% QoQ growth in CC led by momentum from financial services, retail, communication, energy, and manufacturing. Cross currency headwinds of 100 bps would lead to 3.5% QoQ growth in the dollar term. Rupee revenues are expected to increase 6.0% QoQ aided by rupee depreciation.

    However, like peers, Infosys’ operating margin is also expected to be under pressure. Pardikar said, “EBIT margins are expected to contract 75 bps QoQ due to increase in employee cost, retention costs while there would be reversal of contractual provisions made in Q4 and rupee depreciation would help margins to some extent for the quarter.”

    On the bottom-line front, the analyst said, “PAT is expected to decline ~0.8% QoQ.”

    Among key things to watch in the quarter will be — if there is any change in the revenue growth and EBIT margin guidance for FY23.

    Also, Infosys’ net addition of employees in the quarter will be keenly watched. As of now, in Q1FY23, Wipro has made one of the highest hirings with a net addition of 15,446 in the three months. As of June 30, 2022, Wipro’s employees’ headcount is 258,574 compared to 243,128 employees as of March 31, 2022.

    Other peers like HCL Tech in Q1, its total employees count stood at 210,966 rising by only 2,089 employees from 208,877 count in March 2022 quarter. Meanwhile, TCS headcount stood at 606,331 – a net addition of 14,136 during the quarter compared to March 2022 period.

    In Q4FY22, Infosys made a net addition of 21,948 employees – taking the total to 3,14,015 employees compared to 2,92,067 headcount as of December 2021.

    ICICI Direct analyst expects revenue to be at 34,198.1 crore in Q1FY23 up by 22.6% yoy and 6% qoq. While PAT is seen at 5,638.5 crore higher by 8.5% yoy but to drop 0.8% sequentially.

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