Infosys Q1 results: Can this IT stock justify its recent rebound?

Infosys, the second-largest IT firm, will declare its June quarter results on Thursday in the backdrop of a strong rally in its shares that made it the best Nifty performer of the last one month. Notwithstanding a positive momentum on the stock, analysts are not keeping much hopes with June quarter results, given delayed decision-making by clients. They are pencilling in a 0.5-0.8 per cent sequential growth in constant currency (CC) revenue, with a few even expecting lowering of the FY24 guidance from 4-7 per cent suggested earlier. FY24 Ebit margin of 20-22 per cent is expected to be retained.

On a YoY basis, profit for Infosys is seen rising in double digits and sales in single digits. Margin is seen contracting sequentially on wage hikes.

The growth would be muted for the quarter due to ramp down by select clients, said YES Securities. This brokerage sees profit for Infosys rising 14 per cent year-on-year (YoY) to Rs 6,110 crore on a 8.9 per cent rise in sales at Rs 37,523 crore. Another domestic brokerage Axis Securities pegs Infosys profit at Rs 5,998 crore and sales at Rs 37,742 crore. It sees Ebitda margin at 20.6 per cent, down 42 basis points sequentially (696 basis points YoY)

Analysts believe one would keenly follow commentary on demand and deal pipeline. An update on tech spending outlook, margin lever, and revision in FY24 guidance would also be keenly watched.

HSBC said Infosys’ Q4 miss was led by higher exposure to discretionary spend (especially in telecom), productivity pass-through in the BFSI (banking, financial services and insurance) vertical and some delays in other businesses.

"Q1 may still see a spill-over from these sub-trends. Overall, FY24 guidance from Infosys is unlikely to change (from 4-7 per cent), though we think the Street may converge around 5 per cent post Q1," it said,

Phillip Capital expects CC revenue growth of 0.8 per cent sequentially on a weaker base of March quarter. Demand uncertainty in BFSI, Telecom, Hitech and Retail will lead to weak start for FY24, it warned.

"Margins are expected to remain flat as efforts from pyramid optimisation, utilisation, and subcontracting will be offset by likely increase in travel & facility costs. We have not assumed wage hikes for Infosys in Q1. We expect Infosys to retain its guidance,' it said.

The brokerage, however, sees profit jumping 18.6 per cent YoY to Rs 6,357.70 crore from Rs 5,360 crore YoY and revenue rising 10.5 per cent YoY to Rs 38,095 crore from Rs 34,470 crore. Dollar revenue is seen rising 1 per cent sequentially and 3.5 per cent YoY. Ebit margin is seen at 21 per cent, flat QoQ but up 100 bps YoY.

Antique Stock Broking sees a 0.5 per cent QoQ CC revenue growth, even as it accounted for 10 bps tailwind from cross currency. Operating margin should largely be flat at 21 per cent as an increase in visa and facilities cost should be offset by an increase in utilisation, it said.

"We believe large deal wins to remain decent given the recent deal wins and the increasing momentum of cost take deals. But we expect the management to narrow its growth guidance by lowering the upper band by 100 bps to 4–6 per cent as the company’s ask rate to achieve the upper-end post a weak Q1 would be nearly 4.5 per cent CQGR. Margin guidance to remain intact at 20–22 per cent for FY24.

Infosys shares are up 14 per cent in the last one month, the best among Nifty constituents. It, however, is the fifth worst performing index stock in the last one year with a 0.6 per cent drop.