Infosys Q4FY21 preview: PAT seen rising 14-23%; buyback details eyed

Infosys Q4FY21 preview: Driven by the ramp-up of large deals and strong bookings in the earlier quarters, analysts expect information technology (IT) bellwether Infosys to post steady growth in revenue and profits for the March quarter of the financial year 2020-2021 (Q4FY21). However, they expect a sharp contraction in the Ebit (earnings before interest and tax) margins.

The Bengaluru-based firm is slated to post its March quarter numbers on Wednesday, April 14. Analysts expect Infosys to guide for 12-14 per cent growth in revenue and 22-24 per cent in Ebit margin for FY22. Deal win momentum is likely to be tepid after strong Q3 and lower than usual deal announcements. Other key monitorables include the outlook on product business, capital return and measures to defend or improve margins in the backdrop of emerging supply-side concerns.

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The company board will also consider a share buyback during a meeting on April 14. Following this development, the stock had hit a 52-week high of Rs 1,480 on the BSE on Monday. So far in 2021, Infosys has gained 13.53 per cent at the bourses. During the March quarter, the stock gained 9 per cent as against a 5 rise in the Nifty50 index and 6.61 per cent in the Nifty IT index, ACE Equity data show.

Profit expectation

The brokerages vary vastly in terms of profit projection and expect the PAT to rise between 14-23 per cent on a YoY basis while in QoQ terms, it could slip marginally.

Phillip Capital projects a 23 per cent YoY and 2.2 per cent QoQ rise in the net profit for March 2021 quarter at Rs 5,313.3 crore. Infosys had posted a profit of Rs 4,321 crore in the same quarter last year and Rs 5,197 crore in the preceding quarter of FY21.

On the flip side, Jefferies has a more modest projection of a 14 per cent YoY rise in profit to Rs 4,925 crore. Sequentially, it expects the figure to decline by 5.2 per cent.

Revenue expectation

Leading brokerages eye a 13-14.5 per cent year-on-year (YoY) and 1.4-3 per cent quarter-on-quarter growth in the revenue (in rupee terms). The dollar revenue is seen to rise in the range of 2.5-4 per cent QoQ and between 2-3.4 per cent in constant currency (CC) terms.

Nomura eyes a 14.5 per cent YoY rise in Q4 revenue (rupee terms) to Rs 26,647.5 crore from Rs 23,267 crore posted in the same quarter last year. Sequentially, the figure could grow by 2.8 per cent from Rs 25,927 crore posted in the December quarter.

“We expect 3.2 per cent QoQ CC and 3.8 per cent QoQ dollar revenue growth at $3,650 in Q4, led by the ramp-up in deals won in Q3 (highest-ever TCV of $7.13 billion) and continued momentum across verticals, excluding energy where the outlook remains weak,” said Rishit Parikh, research analyst at Nomura.

Kotak Institutional Equities (KIE), meanwhile, sees Q4 revenue at Rs 26,530.2 crore, up 14 per cent YoY and 2.3 per cent QoQ. “We forecast CC sequential revenue growth of 3 per cent led by the ramp of large deals. We note that March is a seasonally weak quarter for Infosys,” it said.

On the lower side, Jefferies expects Infosys to grow revenues at 2 per cent QoQ in CC terms. It sees dollar revenue at $3,605, up 12.8 per cent yearly and 2.5 per cent sequentially. While the rupee revenue is expected to increase by 1.4 per cent QoQ and 13 per cent YoY to Rs 26,283.2 crore, it said.

Margin expectation

Most brokerages expect a sharp contraction in the margins due to wage hikes and lower utilisation due to hiring. Jefferies projects a 165 bps QoQ decline in margins to 23.7 per cent in the March quarter from 25.4 per cent posted in the December quarter. However, on a YoY basis, Ebit margins could grow by 256 bps from 21.2 per cent posted in the same period last year, Jefferies said.

“We expect sequential Ebit margin dip of 130 bps led by full-quarter impact of wage hikes (typically ~150 bps impact) and rising attrition levels,” said Nomura who eyes Q4FY21 margins at 24.1 per cent.

Meanwhile, analysts at KIE forecast an Ebit margin decline of 115 bps sequentially largely on the back of wage revision and lower utilisation rates. “December 2020 quarter utilisation rate (excluding trainees) of 86 per cent is unsustainable in our view and will decline. We note that a lower tax rate in the base quarter and lower treasury income in March 2021 quarter will lead to a disconnect in YoY Ebit and net profit growth,” said analysts at KIE in a result preview note.