Infosys Q2 Preview: Co to lead Tier-I IT pack; profits may grow over 9% YoY
Source: Business Standard
Infosys(Photo: Shutterstock)
Infosys, the second largest Indian information technology firm is scheduled to deliver its financial results for the second quarter (July-September) of fiscal year 2024-25 (Q2FY25) on Thursday, October 17.
Analysts expect Infosys to log strong performance among its Tier-I IT peers, driven by large deal ramp-ups, integration of its subsidiary ‘intech’, and recovery in the banking and financial services sector. The IT major is also expected to upgrade its FY25 growth guidance while keeping the margin guidance intact.
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According to brokerages tracked by Business Standard, Infosys will likely register an average net profit Rs 6,791crore in Q2FY25, a rise of 9.2 per cent year-on-year (Y-o-Y) against Rs 6,215 crore in Q2FY24. Meanwhile profits may rise by 6.6 per cent quarter-on -quarter, compared with a profit after tax (PAT) of Rs 6,368 in the June quarter of FY25.
Infosys average revenue will potentially increase 4.8 per cent Y-o-Y to Rs 40,900 crore as against Rs 38,994 crore in Q2FY24. Sequentially revenues may only rise by 4 per cent. The company registered revenues of Rs 39,315 crore in the June quarter of FY25.
Key monitorables: The street will be keen on knowing the state of discretionary spending across verticals, especially in financial services, deal pipeline after strong last four quarters, senior management attrition, margin levers and wage hike announcement cycle and composition of revenues i.e. revenues from sale of third party items.
Moreover, here’s what key brokerages expect from Infosys Q2 results:
HSBC: HSBC noted that Infosys continues to benefit from strong deal wins, outperforming peers with an improving book-to-bill ratio. This quarter, revenue gains will also come from inorganic growth and cross-currency benefits.
They expect a 3 per cent quarter-on-quarter revenue increase, including a 40 basis point FX boost and 80 basis points from inorganic growth, with Ebit margin expanding by 40 basis points. Key focus: potential FY25 guidance increase from the current 3-4 per cent range, along with strong bookings in Q2.
Nuvama Institutional Equities: Nuvama analysts anticipate a 3.2 per cent quarter-on-quarter constant currency revenue growth for Infosys, with a 3.6 per cent rise in US dollar terms, driven by a 1 per cent contribution from the Intech acquisition.
Ebit margin is expected to improve by 35 basis points quarter-on-quarter, supported by operating leverage and project Maximus. They predict Infosys will raise its full-year revenue growth guidance to 3-5 per cent in constant currency terms (up from 3-4 per cent) while maintaining its Ebit margin outlook of 20-22 per cent for FY25.
Kotak Institutional Equities: Analysts at KIE forecasted a 3.2 per cent sequential revenue growth for Infosys, driven by several factors: a 90 basis point contribution from the acquisition of an auto-focused ERD firm, seasonal strength, continued ramp-up of mega-deals, and a slight uptick in third-party software sales after a dip in the June 2024 quarter.
Financial services are expected to lead growth, while one-off India revenue in the June quarter, contributing 50 basis points, is a headwind. Ebit margins are expected to rise by 20 basis points quarter-on-quarter and 10 basis points year-on-year, aided by INR depreciation, higher utilisation rates, and increased productivity.
However, last quarter’s one-time benefits, including lower bad debt provisions, are a headwind. Large deal total contract value (TCV) is expected to decline to $3 billion, both quarter-on-quarter and year-on-year, due to a high base from mega-deals.
Infosys is likely to raise FY2025 revenue growth guidance to 4-5 per cent from 3-4 per cent, implying a 0.5 per cent decline at the lower end and a +0.8 per cent CAGR at the upper end. Ebit margin guidance is expected to remain in the 20-22 per cent range.
Motilal Oswal Financial Services: Motilal Oswal analysts project a 3.0 per cent quarter-on-quarter constant currency revenue growth for Infosys, driven by the ramp-up of large deals secured last year.
The company is expected to report strong deal TCV this quarter, with signs of recovery in the US financial sector, particularly in mortgage, capital markets, and card payments.
Operating margins are forecasted to dip by 80 basis points to 20.3 per cent, due to the reversal of one-time benefits, investments in large deals, and lower utilisation rates.
Analysts also anticipate that Infosys will raise its full-year guidance by at least 50 basis points.
PhillipCapital: PhillipCapital analysts expect Infosys to report 2.6 per cent quarter-on-quarter revenue growth in constant currency for Q2, driven by large deals, the integration of Intech, and BFSI recovery.
Margins are forecasted to improve by 30 basis points due to growth and Project Maximus efficiencies. They anticipate Infosys will raise FY25 growth guidance to 4-5 per cent year-on-year, while maintaining EBIT margin guidance at 20-22 per cent.
Key areas to watch include demand outlook, discretionary spending, deal TCVs, margin drivers, attrition, and pricing.
First Published: Oct 15 2024 | 12:27 PM IST
