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Q3 preview: Infosys profit seen falling 7% YoY; wage hikes to erode margins

Infosys is likely to report a 7 per cent YoY fall in its net profit for the reporting quarter to Rs 6,108 crore, show brokerage estimates

The attrition rate at Infosys touched a record high of 27.7 per cent in the fourth quarter of FY22 on an LTM (last twelve months) basis, the company revealed
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Harshita Singh New Delhi

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IT major Infosys’ December quarter (Q3FY24) net profit is expected to decline both on a quarterly and yearly basis due to project cancellations, lower discretionary sales and higher furloughs, said analysts. 

Infosys is likely to report a 7 per cent YoY fall in its net profit for the reporting quarter to Rs 6,108 crore, as per an average of six brokerage estimates. Sequentially, this could be 1.7 per cent lower. 

Revenue is expected to be muted with a yearly growth of just 0.9 per cent to Rs 38,660 crore. This is expected to decline by 0.9 per cent from the last quarter (QoQ). Check estimates table

Company’s Ebit margin will likely dip to 20.2-20.8 per cent from 21.2 per cent in the preceding quarter. 

Kotak Institutional Equities (KIE) and Equirus Securities also expect Infosys to fine tune its FY24 guidance for constant currency (cc) revenue growth down to 1-2 per cent from 1-2.5 per cent.  

Key monitorables: Things to be watched out include FY24 annual outlook, any change in revenue guidance, outlook on client decision making cycle and budgets for 2024, comments on senior management exits and reason for cancellation of the mega AI deal. 

ALSO READ: Q3 preview: TCS likely to report single-digit growth in revenue, net profit

Here’s what brokerages expect: 

Sharekhan: It expects Infosys to report 1.8 per cent QoQ decline in cc revenue due to discretionary spend cuts and furloughs. EBIT margins are likely to decline 95 bps QoQ due to wage hike and weaker revenues. 

KIE: It expects cc revenue to decline 2.2 per cent QoQ due to a 150 bps impact of lower pass-through revenues, a 30 bps impact of lower sales and higher than usual furloughs. 

It sees QoQ margin decline of 90 bps due to wage revision onsite and offshore effective from November 1, 2023. It sees muted deal wins at $2.5 billion. 

Elara Capital: It projects a 1 per cent fall in cc revenue. The recent termination of $1.5 billion AI deal with an unnamed global company adds to growth headwinds in the near term, it said.

Demand may be broad-based and tepid, except for manufacturing and energy verticals. 

Axis Capital: CC revenue decline of 1 per cent QoQ is likely by higher-than-normal impact of furloughs. 

EBIT margin is expected to be down by 80 bps QoQ on account of wage hikes (2 month impact) and revenue drag. 

Equirus Securities: Revenue in cc terms is expected to dip 1.5 per cent QoQ due to absence of a one time sales accounted in Q2, lower pass through sales from elevated levels of Q2 and furloughs.

Expect Infosys to maintain EBIT margin guidance of 20-22 per cent. Order book for large deals will decline and normalise quarterly from a high base of Q2.

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First Published: Jan 10 2024 | 2:45 PM IST

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