Infosys raises revenue guidance for FY23 to 16-16.5%, revenue growth beats analyst expectations

• Infosys raised its FY23 revenue growth guidance to 16-16.5%, while the analyst consensus was that it would retain its 15-16% guidance issued in Q2.
  
• In dollar terms, the Indian IT major reported 2.3% sequential revenue growth in Q3, and 2.4% in constant currency terms.
  
• The company reported large deal wins with a total contract value of $3.3 billion – its best in the last eight quarters.
  

Indian IT major Infosys raised its revenue growth guidance for FY23 to 16-16.5% in constant currency terms, as it reported its third quarter earnings on Thursday. Most analysts had expected it to retain its 15-16% guidance issued in Q2.

In dollar terms, the Indian IT major reported 2.3% sequential revenue growth in Q3, and a 2.4% increase sequentially in constant currency terms.

It reported a 20.2% year-on-year increase in its revenue to ₹38,318 crore in Q3 FY23, beating analyst expectations. Its net profit grew 13.4% YoY to ₹6,586 crore as compared to ₹5,809 crore in the same period last year.

However, its operating margin remained unchanged sequentially at 21.5%, which is 20 basis points below the expectations of Emkay Global Financial Services.

“Our revenue growth was strong in the quarter, with both digital business and core services growing. As reflected in the large deals momentum, we continue to gain market share as a trusted transformation and operational partner for our clients,” said Salil Parekh, CEO and MD, Infosys.

This is the second upward revision in the company’s revenue growth guidance in FY23. Infosys guided a 13-15% revenue growth in FY23, at the beginning of this financial year. It subsequently narrowed the guidance to 15-16% while announcing its Q2 results.

“We had exceptionally strong growth on both sequential and year-on-year basis. Then we had very strong large deals at $3.3 billion, the largest we have had in the last eight quarters. The number of deals is also a testament for us. At 32 deals, it was very strong. Given all those factors, we saw that it was right to increase the guidance,” Parekh said.

Here’s Infosys’ latest earnings at a glance:


Source: Company reports

‘Large deal pipeline is seeing traction’

Infosys also reported large deal wins worth $3.3 billion during the quarter, its best performance in the past eight quarters.

“Our large deal pipeline is seeing increased traction for automation and cost efficiency programmes,” Parekh added.

However, its over $100 million client base saw a net decline of one client. The company now has 38 clients that bill over $100 million, down from 39 at the end of the previous quarter.

Most of the new client additions were in the over $1 million range, which increased to 912 from 895 sequentially. It also added two new clients in the over $50 million range, and 13 new clients in the over $10 million range,

‘Cost optimization benefits offset seasonal impact’

Infosys’ revenue growth in constant currency terms came in at 13.7% year-on-year, and 2.4% on a sequential basis, in line with analyst expectations. On the operating margin front, the company maintained its 21-22% guidance for FY23.

“Operating margins in Q3 remained resilient due to cost optimization benefits which offset the impact of seasonal weakness in operating parameters,” said Nilanjan Roy, Infosys’ chief financial officer.

While there is a sequential improvement in the company’s net margins, it is still down 100 basis points year-on-year.

Infosys had emerged as the top pick of brokerages in the large-cap segment. “We prefer companies with a good breadth of capabilities capable of addressing both run and change spends of clients, solid execution track record and available at reasonable valuations. Infosys and HCL Tech fit our thesis and remain our top picks,” said a report by Kotak Institutional Equities.

‘Signs around are showing a slowing global economy’

Despite beating analyst expectations, Parekh struck a cautionary note, saying that there are signs of a slowdown in the global economy.

“While we are encouraged by the immense confidence and trust our clients have in us, the signs around are showing a slowing global economy. Some areas such as mortgages and investment banking in the financial services industry, telco, high-tech, and retail are more impacted and that is leading to delays in decision making and uncertainty in spending in these areas,” Parekh said during a post-earnings press conference.

Parekh also echoed TCS CEO Rajesh Gopinathan’s views on the demand scenario in Europe, saying, “There is more variation we see in the European markets, more concerns on what’s going on in the economy. The [concerns] in the US market are also there, but relatively less so.”


Source: Company reports

Attrition rate declines, headcount sees an increase

On another positive note for Infosys, the attrition rate registered a decline in Q3 to 24.3% from 27.1% in Q2. “Attrition reduced meaningfully during the quarter and is expected to decline further in the near-term,” Roy added.

Infosys also reported an increase in its headcount, with the total employee base rising to 3,46,845 in Q3 from 3,45,218 in Q2, which is an increase of 1,627 employees.

On the other hand, its peer TCS reported a decline in its total headcount by 2,197 employees in Q3.

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