Infosys Q3 results preview: Profit to fall 5-8%; FY24 guidance, details on $1.5 bn AI deal termination eyed

Marketmen tracking the information technology sector are baking in a weak set of December quarter results from Infosys Ltd, with estimates suggesting a 5-8 per cent drop in year-on-year profit on a flat sales growth. For Infosys shares, more than the quarterly numbers, eyes would be on whether the IT major narrows its FY24 revenue guidance further and what is its management's take on the recent $1.5 billion AI deal termination, which could give cues on the demand environment ahead.

To be sure, December is a seasonally weak quarter for IT firms on account of high furloughs and Infosys' Ebit margin seen taking a hit sequentially and on yearly basis due to the impact of two months of wage hikes, analysts said.

For now, a couple of brokerages see Infosys to retain its FY24 revenue guidance of 1-2.5 per cent and Ebit margin of 20-22 per cent. A few differ. Infosys had lowered its revenue guidance to 1-2.50 per cent post September quarter results from 1.35 per cent post June quarter results and 4-7 per cent post March quarter earnings. A majority though believe the FY24 guidance will be retained.

Axis Securities sees net profit for Infosys to fall 8.7 per cent to Rs 6,010 crore while it sees flat sales at Rs 38,945 crore. Emkay Global sees Infosys' profit dropping 7.5 per cent to Rs 6,091 crore on 0.8 per cent rise in sales at Rs 38,632 crore. Ebitda margin is seen falling 113 basis points YoY and 90 basis points QoQ to 24.4 per cent, it said.

PhillipCapital sees profit falling 5.3 per cent to Rs 6,239 crore. This brokerage expects CC revenue decline of 1.6 per cent QoQ.

"We don’t expect recent large deal wins to contribute meaningfully as ramp ups remain weak. Growth to be impacted due to furloughs, weakness in discretionary spending and cautious sentiment across major verticals," PhillipCapital said.

Sharekhan said Infosys could report a revenue decline of 1.8 per cent in CC terms due to discretionary spend cuts and furloughs, with 20 bps cross-currency headwinds. It estimates EBIT margin to decline by 95 basis points QoQ due to wage hike and weaker revenues. The broking firm said as it sees profit falling 8 per cent YoY for Infosys on a flat sales.

Infosys deal total contract value (TCV) stood at $7.7 billion in the September quarter and $2.3 billion in the June quarter. Nirmal Bang Institutional felt that the December quarter TCV would moderate as the second quarter saw multiple large deal signings, something that was not replicated in the December quarter.

"Also, third-party items in the P&L statement will be keenly watched as these have been much higher compared to peers (6-7 per cent run-rate) and have been margin dilutive for the company," it said.

Emkay Global said the Bengaluru-based IT firm can narrow its revenue growth guidance range to 1-2 per cent in constant currency (CC) terms CC YoY, while retaining the 20-22 per cent Ebit margin range. It expects investors to loom for the management commentary on early conversations with clients and expectations on the 20 24 IT budget and factors leading to termination leading to termination of the $1.5 billion deal win --- "where it was a due to competition or change in spending priority by client."

Infosys' will host a press conference at 4:30 pm IST and a 60-minute conference call at 6:30 pm, where its senior management will discuss company's performance and answer questions from participants.