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Weak Q4 performance to impact FY24 topline delivery

Focus to shift to FY25 after near-term correction

* INFO reported a weak 4QFY23 revenue of USD4.55b, down 3.2% QoQ in CC terms, significantly below our estimate of 0.6% QoQ CC growth. This was primarily due to broad-based reduction in business volumes, led by unplanned project ramp downs and delays in new businesses during the early part of Q4. Additionally, the company saw one-off project cancellations and issues with a few clients, primarily on discretionary spending, which it expects to recover in 1QFY24. Further, TCV for large deals in 4Q stood at USD2.1b, down 37% QoQ.

* As a result of weak 4Q performance, INFO missed its FY23 USD revenue growth guidance of 16.0-16.5% YoY CC, delivering only 15.4% YoY. For FY24, the company has given USD CC revenue growth guidance of 4-7% YoY, citing increased uncertainty for the wider guidance band. This implies a CQGR of 1.5-2.5% between lower and upper end of guidance band, which we consider to be ambitious.

* EBIT margin declined 50bp to 21.0% in 4Q, in line with our estimate. Despite the impact of elevated employee cost, resulting from operating leverage, we found the margin management comforting. INFO guided for FY24 EBIT margin to be between 20-22%, in line with our expectation, and implies flat margin delivery at the mid-point of guidance band.

* We expect the big revenue miss and elevated uncertainty to adversely impact the stock’s short-term performance, resulting in a negative reaction from high single to low double digit, on account of the disappointment.

* The 4Q revenue growth was surprising and is likely to have a dampening effect on the company’s FY24 growth, particularly since it suggests a significant impact on growth from INFO’s discretionary business, which has been facing pressure in the recent few months due to the macroeconomic slowdown. We expect FY24 revenue growth to be around 5.2% YoY in CC terms, which is near the lower end of guidance band, as it takes time for the mega deal opportunities to convert into order and revenues. The delay in revenue growth will likely push the recovery for INFO to FY25, once the demand environment becomes more favorable.

* The weak topline performance should prevent the company from benefitting from easing supply environment, and we expect FY24 EBIT margins at 21.1%, flat YoY. This in turn should result in FY24 INR PAT growth in single digits at 9.3% YoY, despite tailwinds from cross-currency and INR depreciation.

* We have lowered our FY24/FY25 EPS estimates by 4/5% to factor in the 4Q miss and FY24 guidance. We value the stock at 21x FY25E EPS and reiterate our Buy rating on the stock.

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