Infosys Q4 net rises 12% YoY; projects revenue growth of 13-15% in FY22-23

Information technology major Infosys on Wednesday projected a revenue growth rate of 13-15 per cent for 2022-23 (FY23) on the back of a “strong demand environment” and “robust deal pipeline”, even as its key numbers for the March quarter (Q4) of FY22 missed analyst estimates.

Infosys reported a subdued performance in the quarter but met its guidance for the full year. The company reported a net profit of Rs 5,686 crore in Q4, up 12 per cent on a year-on-year (YoY) basis but down 2.1 per cent sequentially.

In terms of top line growth, Infosys was ahead of TCS, the country’s largest software services firm. The firm reported a revenue growth of 22.7 per cent YoY in Q4, at Rs 32,276 crore, but only 1.3 per cent growth on a sequential basis.

TCS’ revenue had grown by 15.8 per cent YoY to Rs 50,591 crore in the March quarter. For the full year, Infosys’ revenue stood at Rs 1.22 trillion against Rs 1.92 trillion of TCS. According to a Bloomberg poll, analysts were expecting Infosys to post revenues of Rs 32,788 crore and a net profit of Rs 6,000 crore.

Salil Parekh, CEO & MD, Infosys, however, said the deal momentum and the guidance that the company had provided, laid a strong foundation for FY23. “Infosys delivered the highest annual growth in a decade with broad-based performance driven by deeply differentiated digital and Infosys Cobalt-led cloud capabilities, powered by ‘One Infosys’ approach. We continue to gain market share as a result of sustained client confidence in our ability to successfully navigate their digital journeys,” he said.

The company also said it was moving its business out of Russia and was pursuing alternative options in view of the Ukraine conflict. “We work with no Russian clients, and the work we do is with a small number of global clients in Russia, for which we have started the transition,” Parekh said. The company has less than 100 employees in Russia, he added.

Growth for the quarter was broad-based. Digital as part of the revenue was 57 per cent for the fiscal, up 41.2 per cent YoY in constant currency (CC) terms. In terms of geography, growth was driven by Europe, which was up 28.3 per cent in CC terms, while the US grew 18.5 per cent. In terms of verticals, growth was led by BFSI (banking, financial services and insurance), retail, and communication, which grew at 14.1 per cent, 16.5 per cent, and 29.2 per cent, respectively, in CC terms.

The company recommended a final dividend of Rs 16 per share for FY22.

Infosys also disappointed on margins, which came in at 21.5 per cent for Q4, down from the 23.5 in Q3, because of supply-side constraints and higher subcontractor costs. For FY23, the company has projected operating margins in the range of 21-23 per cent. Here TCS managed to do a better job, with margins of 25.3 per cent in Q4.

Nilanjan Roy, CFO, Infosys, said that with strong growth, the company would need to make upfront investments, which would keep margins under pressure. “However, we plan to neutralise some of the impact through aggressive cost optimisation programs and value-led pricing, driven by service and brand differentiation. This, along with post-pandemic normalisation of expenses, is reflected in the margin guidance,” he added.

“Infosys revenue/margin numbers were below our estimates for Q4….The revenue growth guidance for FY23E reflects another strong year, which means the demand environment continues to be strong on the back of healthy deal wins. However, EBIT margin guidance for FY23E, which is lower 100 bps on both higher and lower end of the guided FY22 band, reflects the continued cost pressures due to demand-supply mismatch,” said a note from ICICI Research.

The bigger concern at the company continues to be attrition, which jumped to 27.7 per cent in Q4, up from 25.5 per cent in Q3FY22. The company added 85,000 freshers in FY22 and plans to hire upwards of 50,000 in FY23.

Though the analysts were disappointed with the performance, the growth guidance of 13-15 per cent was positive. “Infosys headline numbers missed our estimates in a seasonally weak quarter, nonetheless the strength of demand is visible given strong net hiring, broad-based growth across industries, continued large client additions, and robust revenue growth guidance. However, margin guidance remained 100 bps below our expectations at 21-23 per cent. Further, attrition continues to see an uptick and will put supply-side pressure,” said Ashis Dash, IT research analyst, Sharekhan by BNP Paribas.