Q3 results: Infosys beats estimates, raises FY23 revenue guidance

Infosys on Thursday posted strong numbers for the October-December quarter (Q3), with India’s second-largest information technology (IT) firm beating Street estimates on both net profit and revenue.

The Bengaluru-based company also raised its revenue guidance for 2022-23 (FY23) on the back of a strong deal pipeline, despite an uncertain macroeconomic environment globally. The firm said it expected its revenue growth in the range of 16-16.5 per cent in the current financial year, as against the earlier projection of 15-16 per cent. However, it maintained its operating margin guidance at 21-22 per cent.

Infosys signed 32 large deals, 30 per cent more than it did a year ago, for a total contract value of $3.3 billion — the most in two years.

Also, 36 per cent of these deals were net new deals. Infosys reports deals above $50 million only.

Moreover, the company also managed to bring its attrition down to 24 per cent in Q3FY23. This was lower than 27 per cent in the preceding quarter and 25.5 per cent a year ago.

“This is a seasonally weak quarter for us. And amid a changing global economy, we continue to take market share, and we continue to benefit from consolidation. Growth in Q3 was broad-based with most industries and geographies growing in double digits in constant currency. We are seeing growth in both areas of digital and core services,” said Salil Parekh, chief executive officer and managing director, Infosys.

Parekh also said the large deal pipeline was seeing increased traction for automation and cost-efficiency programmes. He also pointed out that decision-making delays and uncertainties were impacting sectors like mortgage and investment banking in BFSI (banking, financial services and insurance), hi-tech, telecom, and retail.

“We believe an uncertain global macro environment will reflect in earnings volatility in FY24E and could restrict material outperformance in the near to medium term,” Sanjeev Hota, head of research, Sharekhan by BNP Paribas, said. “Nevertheless, given Infosys’ strong track record and standing in the global IT arena, long-term growth outlook remains intact,” he added.

The company’s net profit for Q3FY23 came in at Rs 6,586 crore, up 13.4 per cent year-on-year (YoY) and 9.4 per cent sequentially, while its revenue grew 20.2 per cent YoY to Rs 38,318 crore. The revenue was up 4.9 per cent sequentially.

Based on Bloomberg estimates, Infosys’ Q3 performance was better than TCS. Infosys beat the estimates on revenue and net profit. The Bloomberg estimate for Infosys revenue was Rs 37,963 crore; it was Rs 6,465 crore for net profit. TCS, on the other hand, had just beaten the estimates on revenue.

The attrition rate of TCS in Q3 was lower than Infosys. The Tata group firm managed to bring down its attrition rate marginally from 21.5 per cent in Q2 FY23 to 21.3 per cent in the latest quarter. More importantly, hiring dropped at TCS.

Infosys’ employee addition number was also soft at 1,627 for the quarter. “The revenue performance was much stronger than our estimates. However, margin performance was lower than expectations. Despite strong TCV, hiring has been lower, which suggests that there could be some moderation on revenues in the medium term. We are positive on the company on strong growth, continued strong large deal TCV, and moderation of attrition, which suggests ease of supply-side pressure,” said the first cut note on the company from ICICI Direct Research.

Infosys’ operating margins were flat at 21.5 per cent despite currency benefits. “Operating margins in Q3 remained resilient due to cost optimisation benefits which offset the impact of seasonal weakness in operating parameters,” said Nilanjan Roy, chief financial officer. “Attrition reduced meaningfully during the quarter and is expected to decline further in the near term,” he added.