Infosys: The results are weak, but the outlook remains strong
Company performance is largely within the guided range of management
Infosys Q4 results lower than expected. Revenue was ₹ 32,276 crore and EPS ₹ 13.56, 2 and 5 per cent lower than the consensus estimates, respectively. Operating margins were disappointing and gradually declined to 21.5 per cent in Q3 from 23.5 per cent. Street estimates are close to 23 percent.
On the positive side, according to management, the loss of revenue in Q4 was due to one-off contract factors. The company has achieved good growth year on year in all business verticals and geographies. Among the largest IT players, Infosys is one of the few companies that provides clear details on the revenue-performance divide between the digital and legacy business. In Q4, the segment accounted for 59.2 per cent of total revenues and 38.8 per cent in cc terms, accounting for all growth at the full company level.
Furthermore, Outlook is strong with strong Deal Momentum support. Above the solid 19.7 per cent growth (best performance of the decade) provided in FY22, the company has guided steady currency (cc) revenue growth in FY23 to 13-15 per cent. At present, the company does not see any impact due to gross (global inflation, lower GDP growth than expected) or geopolitical risks.
Elevated levels are something to watch out for as companies are engaged in a battle for talent. Attrition was highest at 27.7 per cent in the last 12 months, 25.5 per cent in Q3 and 10.9 per cent in the same period last year. These and some other costs such as marketing and travel riveting explain some margin effect to pre-Kovid levels. Management FY23 guided management margins to 21-23% and FY22 to 23%
It should be noted that company performance is largely within the management guided range.
However, these results are disappointing as markets are accustomed to positive surprises from the company, as Infosys has consistently reported quarterly beats and rises after the initial impact of the epidemic on the Q1 FY21.
Therefore, from a near-term perspective, the initial reaction may be negative. At the time of going to the press, the US-listed Infosys ADR was down 5.2 percent. However, from a basic standpoint, this miss is currently gaining strong business momentum. For two years in a row, Infosys has surpassed TCS and is also working on its own.
If geopolitical factors persist over a long period of time, factors to look at from a long-term investment perspective can have an impact on a few quarters of business; And valuable evaluation. Its valuation is 27.6 times more expensive at one year forward PE in an environment of rising interest rate.
April 13, 2022