IT major Infosys is set to post its Q3 results on January 12. The company in the last quarter had indicated a cautious outlook citing delays in decision-making and cost optimisation from clients. In Q3, brokerages expect Infosys to record around 4 per cent sequential revenue growth and maintain its guidance.
The IT sector is expected to see tepid growth on account of seasonal weakness, higher furloughs, and macro challenges. The sector kicked off the earning season with TCS announcing its results on January 10, beating some market estimates. Industry-watchers are keen to see how its peer Infosys will perform. Here are five things to watch out for as the company is set to announce its results.
Infosys revenue is expected to grow at 4 per cent sequentially aided by strong deal-wins, according to Axis Securities. Revenue growth could go higher by 20 basis points on account of cross-currency tailwinds. Brokerages have noted manufacturing is expected to drive growth given that it bagged three large deals in the vertical last quarter. Elara Capital, however, has noted that communications will remain weak, mostly consisting of cost take-out deals.
The EBIT margin is expected to expand in the band of 33 bps to 80 bps sequentially, according to brokerage reports. The margin expansion would be led by easing supply-side pressures, a weaker rupee, better utilisation, and reduced subcontractor costs. Axis Securities, however, said that “margins are likely to remain flat due to moderation in supply side constraints”
Brokerages expect revenue guidance, which would indicate the growth expectations for the next quarter, to be broadly retained at 14-16 per cent in cc terms. In the last quarter, Infosys had raised the lower end of FY23 revenue guidance to 15-16 per cent in cc terms from 14-16 per cent.
Deal wins momentum
In the current macroeconomic environment, the nature of deals is changing and large deal momentum is expected to see moderation. Against this backdrop, it is significant to note that Infosys has won three large deals in the manufacturing vertical. As cost-takeout deals are expected to be prominent, the TCV of deal wins this quarter is to be watched out for. Infosys TCV deal wins stood at $2.7 billion, the highest in seven quarters, in Q2.
Infosys indicated a cautiously optimistic outlook last quarter. A probable slowdown in the western economies, delay in decision-making, and talks of tech-spending cuts have been clouding the clear outlook for the sector. Hence, the management reading of the demand environments, pricing conversations, visibility going ahead, and vertical and geographical growth are to be watched out for.