IGI Logo

Weak financial performance for the quarter

Our view and valuation

While, revenue and operating margin was below expectation for the quarter, we see it as one time blip, as it was due to many one‐offs. Overall performance for FY22 remained strong at 20% + revenue growth in USD terms. The outlook remains strong led by robust demand environment and that is also reflected in 13‐15% revenue growth guidance in cc terms for FY23. We do expect certain cost related to travel and admin to come back but with improving employee pyramid and moderation in employee attrition, any further downward pressure on margin to be limited. Hybrid model of work should help to optimize admin costs. Deal booking and deal pipeline remains strong and that provides strong revenue visibility. It continues to invest in scaling up its cloud offerings and automation tools to capitalize on the demand environment. We estimate revenue CAGR of 14.7% over FY22‐24E with average EBIT margin of 23.4%

We maintain BUY rating on the stock with revised  target price of Rs 2,018 at 27.5x on FY24E EPS. Trades at PER 23.8x on FY24E EPS.

Result Highlights

Reported revenue of Rs 322.8 bn( up just 0.7%  QoQ in USD terms, up 1.3% QoQ in INR terms). Digital revenue was up 36.2% YoY in USD terms, while core( legacy business) was down 0.3% YoY. Digital now contributes 59.2% of revenue compared to 58.5% in Q3FY22.   In terms of verticals, performance was notably muted in Life science vertical in QoQ terms.

EBIT margin was down 193 bps QoQ to 21.6% on muted revenue growth in the quarter.

Large deal booking remained strong at $2.3bn for the quarter, along with adequate mix of mid and small sized deals

Offshore effort mix was down 20 bps QoQ to 76% for Q4FY22

Net addition of 21948 employees during the quarter to reach 3,14,015 employees. Excluding trainees, utilization was down 150 bps QoQ to 87%

LTM attrition increased by 220 bps QoQ to 27.7%, but annualized quarterly attrition has moderated sequentially

Declared final dividend of Rs 16/ share, up 6.7% YoY.

Guided for revenue growth of 13‐15% for FY23 in constant currency with EBIT  margin band of 21‐23%

KEY CON‐CALL HIGHLIGHTS

Muted sequential revenue growth was due to adverse impact from 3rd covid wave, weak Q4 seasonality and certain contractual client obligation which it hopes to recover in subsequent quarters

 Attrition remains high but annualised quarterly attrition came down by 5 pp QoQ.

Very limited impact on operations from Russia ‐ Ukraine war.  Transitioning a 100 employee center out of Russia. No impact on demand from current Russia Ukraine war. Has delivery centers in Romania and Poland and are actively recruiting for them.

Focus remains on scaling up its cloud offerings and its automation tools.

Q1FY23 will see wage hike across offshore‐ onshore centers and that will impact sequential margin for Q1FY23.

Certain cost savings related to Pandemic will come back but it plans to neutralize some of the impact through aggressive cost optimization programs and value led pricing and that has been considered in 21‐23% EBIT margin guidance band for FY23.

Subcontracting cost has started plateauing at around 11% of revenue.

Life Science is a small vertical for Infosys and some volatility is associated with it.

Fresher hiring will continue to remain elevated for FY23 also.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

Above views are of the author and not of the website kindly read disclaimer