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Infosys Q4FY22 -Q4 numbers weak on margins; FY23 guidance reflects cost pressures...

ICICI Securities 14 Apr 2022

What’s Buzzing:

Infosys reported weak numbers on margins in Q4. The company is guiding 13-15% CC revenue growth in FY23 while EBIT margins guidance is lower at 21-23% band.

Context:

Infosys’ revenue, margin numbers were below our estimates for Q4. The company’s revenues increased 1.2% QoQ and 20.6% on YoY in CC terms while dollar revenues increased 0.7% QoQ. It reported EBIT margin of 21.5% for Q4, which was down 200 bps QoQ. EBIT margins for the quarter were impacted by i) -160 bps impact on compensation and high sub-contractor costs ii) -60 bps on lower utilisation, iii) -100 bps on higher visa costs, which were mitigated by +120 bps salary related benefits (in our understanding it pertains to some reversal on higher provisions made in the earlier quarters). Revenue growth was broad based across geographies & verticals. In terms of geographies, revenue growth was led by Europe, which grew 28.3% YoY, followed by North America, which grew 18.5% YoY in CC terms. In terms of verticals, growth was led by BFSI, retail, communication, which grew 14.1%, 16.5% and 29.2% YoY in CC terms, respectively. The board proposed a final dividend of Rs 16 per share, taking total dividend of Rs 31 for FY22 vs. Rs 27 per share in FY21 (~15% increase).

 Our Perspective:

Infosys’s performance in FY22 was in line with guidance provided as the company ended FY22 with revenue growth of 19.7% in CC terms vs. guided range of 19.5-20% and EBIT margin of 23% vs. guided range of 22-24%. The revenue guidance of FY23 reflects the strong demand momentum for the company. On the margin front, the company’s guidance cut by 100 bps both on higher and lower end vs. FY22 reflects the cost pressures but also includes onetime investments on cloud and digital side, which are non-recurring in nature. This means margin guidance for FY24 could be back to the range provided in FY22, in our view.  The company’s attrition has reached 27% on an LTM basis but on a quarterly annualised basis, the attrition is down 500 bps QoQ as per management, which indicate that attrition may plateau in FY24. We estimate 11.9%, 14.6%, 17.3% CAGR in revenue, EBITDA, PAT, respectively, over FY22-24E.

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