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Steady deal wins to drive FY25 revenue growth

Margins should bottom out in FY24, reiterate BUY

* INFO reported strong 3QFY24 revenue of USD4.66b, down 1.0% QoQ in CC terms, better than our estimated decline of 1.7% QoQ CC. The large deal TCV momentum remained intact at USD3.2b (down 3% YoY, net new at 71%). The management sees strong traction in the large deal pipeline, despite an adverse demand environment.

* Weakness was visible in parts of Financial, Comm, Retail and Hi-Tech, partially compensated by better demand in Manufacturing, ENU and Life Sciences. The company narrowed its FY24 revenue growth guidance band to 1.5%-2.0% YoY CC from 1.0%-2.5% YoY CC earlier, effectively keeping the mid-point unchanged.

* EBIT margin declined 70bp QoQ to 20.5%, marginally ahead of our estimate. Profitability was aided by a lower-than-expected wage hike impact of 70bp, partially due to another reduction in workforce (-6.1k, down 190bp QoQ). This was further helped by continued moderation in attrition (12.9% in 3Q) and improved utilization at 82.7%. We expect the company to deliver a stable margin in Q4, resulting in 20.8% EBIT margin in FY24, near the midpoint of its 20%-22% EBIT margin guidance.

* 3Q TCV of USD3.2b was broadly in line with INFO’s recent TCV range (excluding the exceptional 2Q), which we will take as positive given the high base and adverse seasonality. LTM large deal TCV of USD15.3b, along with continued strength in the pipeline, should drive FY25 revenue growth. We expect the company to deliver FY25 USD CC revenue growth of 7.7% YoY despite muted 2HFY24. We factor in a 7.3% revenue CAGR over FY23-26, despite macro headwinds.

* With operating leverage and cost-control initiatives in action, INFO should improve its EBIT margins over the next two years to 22.5% in FY26, leading to an 11% PAT CAGR over FY23-26E.

* We have kept our FY24-FY26 EPS estimates broadly unchanged after the 3QFY24 result. We view INFO as a beneficiary of acceleration in IT spending, given its capabilities in Cloud and Digital transformation areas. We value the stock at 22x FY26E EPS and reiterate our BUY rating.

3Q better than expected, guidance narrowed but remained in line

* USD revenue stood at USD4.66b, down 1.0% QoQ in CC but better than our estimate of a 1.7% QoQ decline. Reported USD revenue declined 1.2% QoQ.

* FSI, Telco and Hi-tech remained under pressure, along with North America. Client behavior was unchanged with digital projects on hold.

* EBIT margin of 20.5% declined 70bp QoQ, but it was 30bp above our estimates as the impact of wage hike was lower than expected (70bp).

* Large deal TCV of USD3.2b (USD7.7b in Q2), with book-to-bill of 0.7x.

* The employee count declined by 6.1k (vs -7.5k QoQ in Q2). Utilization rose 90bp QoQ (ex trainees). Attrition (LTM) was down 170bp QoQ at 12.9%.

* Net profit declined 1.7% QoQ to INR61b, in line with our estimates due to a higher tax outgo.

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